DynamicWealth                                                 

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INTRODUCTION  

        

have  always been a  great history  buff when  it  comes  to 

rags‐to‐riches  stories.    I  like  to  know  how  other  people 

pulled  themselves  up  by  their  bootstraps  and  made  a 

fortune.   I  remember  going  to  the  library  and  looking  at 

autobiographies  of  great  people  in  history.    I  ran  across  a 

book about John. D. Rockefeller.  Here was a man that took a 

very  simple  idea  and  created  a  dynasty  out  of  it.  While 

reading  the  book  I  read  a  quote  by  Mr.  Rockefeller  that 

forever changed my life.  

   

“I always  tried to turn every disaster  into an opportunity.”  

John D. Rockefeller  

   

I was at a point  in my  life where  things were not going 

quite  so well.  I had  just gotten out of  the Army and wanted 

something more  out  of my  life.    I  didn’t  have  a  job  but  I 

wanted  to  travel, have nice  cars, a big house, you know  the 

usual stuff.   There was only one problem; I did not have any 

money.  While I was sitting there in the public library reading   

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 this  tremendous  book  about  John D. Rockefeller,  I had  this 

revelation.  I can turn my life around.  

   

I  pulled  out  some  other  reference  books  that  wrote 

about  great  people  in  history  and  I  cam  upon  a  common 

theme.  The reason over 90% of the American public struggles 

financially  is  because  they  follow  the  crowd.    They  assume 

because everyone else  is working or  investing  in a particular 

area  that  it must be a good deal.  My goal  in  this book  is  to 

open your mind  to a new way  to make money  that will also 

put you  in the game to win.  To win, you need to be focused 

on what  investments or ways of making money are  creating 

the most assets for you.  

   

Another  common  theme  I  found was  that  even  though 

all  of  these  people  kept  telling Mr.  Rockefeller  that  it  could 

not be done, he did not listen.  In fact it made him even more 

determined  to  prove  everyone wrong.  He  did  just  that  and 

laughed all the way to bank while doing it.  

   

I found that whenever I tried something new my friends, 

family  and  associates 

would    tell   me    that    it 

could not be done.   That 

perhaps   it   is   not   legal.  

  

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 That I will lose money.  I found that these are all words of the 

uneducated and the cynical.  If someone is not familiar with a 

type of investment they often try to “put it down” rather than 

appear  like  they do not  know  anything about  it.    There  is  a 

great saying that goes:  

   

Consider Your Source!     

I  slowly  started  to  learn  that  life  is  really  a  big  game. 

Now don’t get me wrong.   I still  take  life seriously and  there 

are  some  very  important  issues  in  everyone’s  life.    I  just 

slowly  started  to  realize  that  I have  a  certain  role  that  I  am 

playing in life and it is up to me to gain more skills, knowledge 

and  tools  to  learn how  to play  the  game  to  the  best  of my 

ability.  

   

Do  you  remember  the  first  time  you  ever  played  a 

game?   I do.   I  lost.   I  lost very fast.   It was a simple game of 

checkers, but because  I did not understand  the  rules  I  could 

not play very well and soon  lost all of my pieces.  As I gained 

more  skill  at  the  game  I  started  to  look  at  strategies  that 

would give me a competitive edge to win the game.  I started 

to read books and play the game a lot.  I finally got very good 

at the game and my confidence grew as a by‐product.   

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To make progress and play to win you first need to step 

(not leap) out of your comfort zone.  The first part of stepping 

out  is to educate yourself.  The second step  is to analyze  the 

possibilities.  The third step is to do it.  

   

But  like John Rockefeller I did not have any money to get started.  As a matter of fact I did not even have an idea.  I started to read books on investments that would allow me to start small or without any money.  I finally ran across this idea of  “defaulted  paper”  as  a  way  to  get  myself  out  of  the position  in  life  that  I was  in.  I  found  a  unique  niche  that  I could make money where there was virtually no competition and my  income  was  only  limited  by  how well  I  played  the game. And I’ve used it to provide a very comfortable living for my family and me. 

 

   

In this book, I’m going to show you exactly how to do 

the same thing.  

   

As you’ll  see,  there’s nothing  fancy about  this book.  It’s 

the  street‐smart  knowledge  I’ve  gained  over  the  years… 

packed  into  these  pages. No  glossy  paper or pretty pictures 

here. Just a plain, simple common sense, approach to making 

great money.  

   

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What  I’ll  show  you  here  isn’t  hypothetical  or 

circumstantial.  It’s  real…  the  nuts‐and‐bolts  secrets of how  I 

make money in a littler know industry. “Defaulted Paper” also 

known a “Delinquent Paper” is a bit misleading, as you’ll soon 

find  out.  All  you  will  do  is  simply  put  into  motion  the 

procedures that enable you to make great sums of money.  

   

Quite simply, it’s the best way of making money I know.  

   

It  is a business that you do not need any money  to get 

started.   If you have money, how does making 90% a year on 

your money sound?  More on this later.   

   

I’m proud of what  I’ve done over  the past 15  years. 

I’ve  built  a  strong  business… Over  the  years  I  have  been  in 

this business I have  learned that I really enjoy watching other 

people  become  successful  and  make  a  lot  of  money  from 

what  I have  to  teach  them.   I  guarantee  that  you will  learn 

how to make as much money as you want even  if you do not 

have any money to get started.  Just imagine yourself as John 

Rockefeller when he got started.  He did not have anyone to 

show him what to do and what not to do.   Because you are 

reading this book, you are different.  You have already proven    

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 that  you  have  the  desire  to   improve  your   life  and  your 

financial condition.  

   

You  are  about  to  learn  how  to  make  a  tremendous 

amount  of money  from  a  resource  that  is  boundless  and  is 

virtually  untapped.    If  you  have money,  even  better.    I will 

show  you how  to get  returns on your  investments you have 

only dreamed about.   

 I'm going to change your  life.   These techniques that I'm 

about  to  teach  you  is  very  real  and  very  powerful,  and 

absolutely  will  change  everything  about  your  financial  life. 

It'll help you change it.  I know, it changed my life.                        

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CHAPTER ONE  

   

WHAT ARE WE GOING TO TALK ABOUT

 

   

Since  I  have  already mentioned  defaulted  paper  let me 

take  a  few  moments  to  explain  what  I  am  talking  about. 

Defaulted  paper means  different  things  to  different  people. 

In a nutshell defaulted paper is:  

• Mortgages  

• Trust Deeds  

• Contract For Deeds  

• Land Sale Contracts  

• Notes  

• Judgments  

   

Each of these pieces of paper has real estate as collateral. 

This is also called a secure investment.   It is also an area that 

is  overlooked  by  over  95%  of  all  investors.   Now,  I  am  not  

  

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 talking about you having to buy real estate or even having to 

buy the paper.  What  I will show you  in this book  is how you 

can profit  from  the wonderful world of paper without using 

any money and without buying property.  

   

When people think about defaulted paper they think:  

1.    Problems  

2.    Foreclosures  

3.    Evictions  

4.    Lawyers  

5.    No money                        

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 While  these  thoughts  are  real  they  also  hide  all  of  the 

benefits of defaulted paper, which from my point of view  far 

outweigh  the negatives.   Keep  in mind  that no matter what 

you do  there are always pluses and minuses associated with 

everything.   

 If  you  remember  from  the  Introduction,  John  D. 

Rockefeller’s quote:  

   

“I always  tried to turn every disaster  into an opportunity.”  

‐John D. Rockefeller  

   

Mr.  Rockefeller  found  ways  of  turning  negatives  into positives.  I  found  that  assets  that  people  considered  to  be problems  represented  huge  profits  with  very  little  (if  any) investment for someone who new what to do with the paper. Quite  literally  I  found  a  goldmine  in my own  back  yard  and over  time  I  found  out  that  there  is  plenty  of  this  paper  in every  city  in  the  country.    Most  investors  ignore  defaulted paper because they do not understand it. Learning how  to buy  the paper at a huge discount  leads  to  huge  returns.    In  fact, defaulted paper  investors require at  least a  30%  return  on  their  money  per  year. That’s  just  the minimum.     What  if  you could   double   your  money   each   year? Would it make a difference?  Learning how to “flip” the paper 

 

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 to another  investor generates  immediate cash.   By  flipping a defaulted  mortgage  deal  to  another  investor  gives  you immediate  cash.      The  investor  pays  you  a  referral  fee  for finding the deal.   There  is no money out of your pocket.   So, to answer a question  I am sure you are going  to ask, you do not need any money to get started with defaulted paper. 

  

 But,  I am getting way ahead of myself.   Let me  tell you 

just  some  of  the many   benefits  of why  defaulted  paper  is such a great opportunity  and  it  could  cost  you  thousands of dollars not to learn these techniques. 

  

 Let’s run through some of the benefits. 

 

   

Little Or No Start‐Up Cost  

    

Profiting  from defaulted paper does not mean you have 

to use any money.   You can get started  just by providing  the 

information  to others who will pay you a  substantial  fee  for 

your “research”.     As you’ll find out  later  I will even pay you 

for this information.  

   

Works Anywhere   

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The  paper business has  no  geographical boundaries.    It 

does  not matter where  you  live  now or where  you want  to 

live  in  the  future.    You  can  do  this 

work  anywhere  in  the  country, 

whenever    the   mood    strikes    you. 

From    the    biggest    cities    to    the 

smallest    towns.    From    Boston    to 

Baton Rouge, Portland to Pasadena. If 

you’re  a  night  owl,  you  can  do  your 

work  at  night,  leaving  your days  free 

for   your   favorite   leisure   activities. 

There  is simply so much defaulted paper available you could 

never hope to handle it all.  

   

After I got out of the Army and found delinquent paper I 

realized  I  could  live  and  run  this  business  from  anywhere  I 

wanted.    I  chose  Colorado, which  is where  I  presently  live, 

because I  love the clean mountain air, the skiing and outdoor 

activities  and  the  slower pace of  life.   I moved  to Colorado. 

Not because  I had to  live  in Colorado to do the business, but 

because I wanted to.   It was my choice and on my terms.   In 

essence I live in Colorado because I can.  

        

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100% Home Based And Employee Free     

You can choose  to work out of your own home,  I don’t, 

but I choose not to because I have a large operation and need 

employees  to  handle  the  large  number  of  deals  that  are 

brought to me by students.  

   

You  can  do  the  business  without  having  an  office 

downtown  or  having  a  bunch  of  employees  with  payroll 

responsibilities,  taxes, workers  compensation,  etc.     I mean 

you can run your paper business out of your home.  No more 

driving   to   an   office   building  where   you  work   to  make 

someone else rich.  There’s one bad thing about this business. 

Weekends  lose their  importance.  It’s true. You see when you 

have so much free time during the week Saturday and Sunday 

aren’t so  important.  I don’t know about you, but that’s OK  in 

my book.  

   

You  do  not  have  a  big  staff  to  make  money  from 

defaulted paper.   I have had people write me or call me and 

say  how  they  love  the  defaulted  paper  business  because  it 

provides them with immediate cash.  

      

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 Others  who  use  defaulted  paper  as  part  of  their 

retirement  vehicles  are  excited  with  the  returns  they  are 

making  in  tax‐free or  tax‐deferred  retirement  plans.   Buying 

paper  is only part of  the game.   And  it  is a game.   But,  it  is 

also a business.  Which is  it you might say?   It can be both or 

neither.    It’s  up  to  you  to  have  fun with  a  prosperous  new 

way of life.  

   

Huge Upside     

How many of you are totally committed to doing what  it 

takes to make the  income you want?   I ask you that question 

because  I  know  a  lot  of  people  go  95%  of  the way  toward 

getting what they want and they stop just shy of their victory. 

If  they'd  just  take one more  step, hang  in  there  just  a  little 

longer, they'd get it all.  

   

Defaulted paper allows you  to make $2,000 a month or 

even  $40,000  a  month  or  more.      Your  income  is  totally 

dependant on your efforts.  What you put into the business is 

exactly what  you will  get out  of  the  business.    You may  be 

happy doing  just one deal a month for $2,000.  You may only 

work deals that will make you $5,000 or more per deal so you 

only  have  to  do  10  of  them  a month  to meet  your  goal of 

$50,000 for the month.   

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 What if you want to get started right now, but you don’t

even have $1,000 to get started. What could you do? You could find other investors to flip your defaulted paper deals too or approach some friends on family about investing their IRA money (this topic is covered in more detail in later chapters). What else could you do? How about if I help you get started?

 Let’s say you found two deals and flipped them to

Heartview Financial for us to purchase. On each deal you made a solid fee of $5,000. Now you have the money ($5,000 x 2 deals = $10,000) to start buying deals for your own portfolio. You have $10,000 in seed capital to get started on your road to financial success.

 Realistically,  a  single  note  deal  could  yield  you  a  cash 

profit of $1,000 to $15,000 or more.   If you only want to put 

in an hour or two each week, there’s no reason you can’t put 

an extra $1,000 or $10,000 per month  in your pocket.  That’s 

not  bad  for  a  few  hours  a  week.    You  know,  the  average 

household income in the United States is somewhere around 

$30,000. And most people make that by slaving away 30, 40, 

even 50 hours a week!  I just don’t understand why people do 

it when  there are  such better ways  to make money.   I know 

you will be different.  Maybe you will only work every other 

month.  The choice is yours.  The opportunity is here.  Now.   

 Many  people  want  a  guarantee  on  how  much  money 

they can make.  How much can you make?  Truthfully, I don’t   

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 know how much you will make because I don’t know anything 

about  you.   Some of  the people  I’ve  taught make  less  than 

$1,000 extra dollars per month.   They choose to have  it that 

way because they don’t want to put in more than an hour or 

two each month.  They’re happy with an easy extra $5,000 to 

$12,000 per year.        

Above Average Return On Investment     

When  you  have  a  little  money  to  invest  your  rates  of 

return will be better than you could have ever imagined.  You 

Don't Have To Settle For Underachieving Investments such as:   

 • Low Interest Rate CDs 

 • Poor Performing Stocks, Bonds or Mutual Funds 

 • Unsatisfactory Insurance Products 

 

   

With  just  a  few  of  the  techniques  covered  in  this  book 

you will be  able  to make  consistent double‐digit  returns on 

money that you invest.  Your money is completely secured by    

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 real  estate  and  you  are  not  subject  to  fluctuating  interest 

rates or the stock market.   

 We all know that you

can make money in the stock market. Some investors believe in the buy and hold strategy while others try to time the market. There are seminars that encourage you to trade options or futures and

courses that attempt to teach you how to become a day trader. The work may be nothing more than doing research on a particular stock or company. Other times the work involves watching the market fluctuations, interest rates, the bond market, contacting your broker, using the internet for research and checking business reports or reading investment newsletters. Even after you do all this research you still do not have a guarantee that you will make a higher return than what you could make from a basic CD or mutual fund. And there is research that shows many investors in the stock market lose money every year.

 

   

You  can make  very  good  returns  in  the  stock market  if 

you  research  properly,  watch  the  market  diligently,  have 

enough money  to  invest  and have a  little bit of  luck.   If you 

were  asked what  rate of  return  you were  going  to make  at 

the  end  of  the  year  you  knew with  almost  100%  certainty, 

would you have the answer?  Do you want to put your money  

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 in  the market where anything can happen and often does or 

would   you   rather   have   an   investment   vehicle   that   can 

provide  you  with  an  average  of  high  double  digit  and 

sometimes  triple  digit  returns  each  year  and  every  year, 

perhaps even tax‐free?  

   

This  book  is  not  about  getting  rich  quick.    It  is  about 

making  choices  that  are different  from  the mainstream.    By 

making  the  right  type of  investments  you  can  increase  your 

yields while  having  a  high  level  of  security.    That  does  not 

sound  right does  it?   How  can  you have high  returns  unless 

you have high risk?  

   

You invest where others are not.        

Virtually no competition.  

   

As  you  will  soon  discover,  there  is  a  lot  of  defaulted 

paper out  in  the marketplace but no one knows what  to do 

with it.  You see, everyone only wants the good paper.  Paper 

that is receiving a monthly payment every month without any 

problems.   Where  the  payor  (debtor)  has  perfect  credit,  a  

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 great  job  and  lots  of  assets.    All  of  the  other  investors  are 

competing  for  the  same  deals.    Well  guess what,  defaulted 

paper has very  little competition.  We  (that’s you) only want 

“bad”  paper.   We  can pick  and  choose  the  very  best  of  the 

bad paper to invest in.  We can find properties where there is 

a  ton  of  equity,  yet  because  the  homeowner  is  not making 

any  payments  on  the mortgage,  investors  are  not willing  to 

buy  the note  from  the note holder.  Most every  single bank 

that you find treats defaulted paper as food poisoning.  They 

don’t want  it  in  their system and want  to get  rid of  it as  fast 

as  possible.    None  of  the  banks, mortgage  companies,  and 

investors want defaulted paper.  Where does  it go?   To  you 

and  me.      Banks  want  to  get  rid  of  it  because  too  much 

defaulted paper on a banks book can force the bank to close 

down  so  they  must  get  rid  of  the  bad  paper.      Finance 

companies  and  mortgages  are  only   looking  for  the  good 

paper  to make  a  small  rate of  return.   Investors who own a 

mortgage  where  the  debtor  (homeowner)  stopped making 

his  payments  do  not  know  what  to  do  with  the  defaulted 

mortgage.  All the  investor knows  is that he  is not getting his 

monthly payments.   This  leaves a huge viable opportunity for 

you and me to make a lot of money together.  

   

Buy Real Estate at Huge Discounts  

       

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 I guarantee that you will be able  to purchase real estate 

at prices that make buying properties at foreclosures look like 

you  are  paying  retail.      For  anyone  that  buys  foreclosures, 

buying at 50 – 60 cents on the 

dollar  is  fairly  commonplace.  I 

am  not  arguing with  this  at  all. 

I  am  simply  saying  that  when 

you   work   on   the   defaulted 

paper side of the equation you 

are  able  to  purchase  property  J      

for    literally   pennies   on   the 

dollar.   

 You have a virtually endless supply of paper that you can 

purchase.     There   is  even  more  of  an  opportunity  when dealing with  defaulted  paper  simply  because most  investors do  not  know what  to  do with  the  paper or  how  to  profit  it from the defaulted paper. 

  

 What  this means  is  that  since  so  few people know how 

to  purchase  defaulted  paper;  you  are  able  to  get  the  very best discount on the paper you locate or buy.  This equates to a very large return on our investment. 

  

 Defaulted paper = HUGE RETURNS 

     

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Tax Free  

   

I’ll never  forget  that day  I  found out  that you  could get 

returns  tax‐free.   Yes  that’s  right,  tax‐free.   The  benefits  to 

you  and  your  family  are  huge.    Imagine making  your  high 

double‐digit  returns without having to pay  taxes on  the gain. 

I already mentioned that rates of return are in the big double‐ 

digit numbers, but imagine making an additional 20% or more 

on your investments each year.  I will explain how you do this, 

and it will take some explaining on exactly how you do this.  

   

This  is  a  great  opportunity  if  you  are  looking  to make 

money   quickly   for   retirement   or   looking   to   grow   your 

portfolio to outrageous sums over the long term. This is not a 

loophole  but  is  a  time  tested  IRS  approved  technique  that 

allows  you  to  quantum  grow  your  investments.  I will  cover 

more about tax‐free investing in a later chapter.   

 You know  I can go on and on  talking about  the benefits 

of this business. But enough is enough, so lets get started into 

the basics of how and what to do with defaulted paper.        

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CHAPTER TWO        

THINKING OUTSIDE THE BOX

 

       

Before  I  go  into  the  basics  of  how  to  put  these  deals 

together  I  feel  it  is  important  to  tell  you  something  about 

myself.  I didn’t just arrive here with this information in hand. 

There is a story behind the ideas.  So let me tell you how I got 

started.  

   

Well,  let me start by  telling you  it wasn’t easy.   You see, as a child  I never  stayed  in any one place  for very  long.  My father was an enlisted man  in the United States Army.   Being enlisted  in  the Army meant  that we had  to move every  two years.   I  learned early on that  I should not depend on others for my  emotional  or  financial well  being.    Since we moved every  two  years,  I  was  not  able  to  make  long  lasting friendships.   Not  that  I  couldn’t,  but  simply  because  it was less painful  (emotionally) when we moved  if  I was not great 

 

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 friends with  other  kids  in my  neighborhood.    I  developed  a skill that allowed me to easily develop relationships when we moved to a new area and pick them back up again when I saw my friends 

 

                                         

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The Young Entrepreneur     

I  remember  looking  around  and  seeing  all  of  the adults  who  were  not  in  the  military  going  to  work  each morning and coming home tired and complaining about their jobs.  I remember thinking to myself “boy, I hope I never have to  do  what  they  are  doing.”    I  was  not  completely  naïve, however.     When   I  was   eight   years   old   our   family  was stationed  in Hawaii.   I loved to read comic books and eat  lots and  lots  of  candy  as  a  kid.    I  especially  loved  eating  pixie sticks.    You  know  the  candy  that  comes  in  a  straw  and  is almost all sugar.  Well  to buy my comics and candy  required money and my dad only gave me a little allowance. 

  

 So,  I  started a  lawn cutting service.   I charged $5  for 

each  lawn.   I only cut  lawns on the weekend so  I was able to cut 4  lawns and make $20.   Now  that might not  seem  like a lot, but keep in mind I was only 8 years old.  $20 for an 8 year old was  a  lot of money.   Not only was  I  able  to buy  comics and candy but I could go to moves and buy other toys.  At this age  I  did  not  learn  very  much  about  saving  or  investing money. When the money came in, it went right back out. 

  

 Cutting lawns required a lot of effort and the truth be 

told  it was not a  lot of  fun.   I  thought, gosh, how else  can  I make money. My first brilliant idea was about to be born. 

     

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Dumpster Diving To The Rescue   

 Have  you  ever  heard  that  one  person’s  trash  is 

another  person’s  treasure?        This  is  just  like  John  D. Rockefeller’s  statement  about  turning  a  disaster  into opportunity.   I did not  realize  it  as a  child but  I was  turning other  peoples  disasters  into money.    I was  creating money from an asset that everyone else thought was worthless. 

  

 How do I know you might ask?  Simple.  As a kid living 

in Hawaii with my  father one of my  chores was  to  take out the  trash.   In  the army you don’t have a single  trashcan  that you take out to the curb and a trash truck comes by and picks up  your  trash.      Instead  there  is  a  large  dumpster  that  is available  for  everyone within  a  neighborhood  to  place  their trash.   The special dump truck will come by once a week,  lift the dumpster  in the air and dump the contents  into the back of  the  dumpster.    This  actually  reminds me  of  a  story my mother loves to tell how as a very small child I climbed into a dumpster  just  before  the  trash  truck  came  to  pick  up  the trash.  My mother told me how she cam out screaming at the trash people no  to dump  the  trash because  I was  inside  the dumpster.      I  guess  that  was  really  my  first  brush  with greatness.   Anyway back  to my  story.  When  I put our  trash bags  inside  the  dumpster  I  remember  looking  inside.    I  am sure  you  have  also  looked  inside  trash  areas  just  out  of curiosity to see what other people are throwing away.  What I saw were a couple of Archie comic books.  Remember I loved comic  books  and  this  was  an  opportunity  that  was  just  to good to pass up.  I climbed inside and found two Archie comic 

  

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 books.  The covers were ripped  in half but that didn’t matter to me.    I  had  found  gold.    Each  day  I would  go  out  to  the dumpster  to  see  if  any more  comic  books had been  thrown away.  Over the span of a couple of months I amassed around 50 different comic books. 

  

 In our neighborhood  lived a  lot of kids.  The kids also 

liked to look at comics.  Some of my friends had comics that I wanted very badly but I did not have the money to go out and by  the  comic.    I  found my  friends  were  will  to  trade  their brand new comic for one or two of my used comics.  All of a sudden  I  was  negotiating  trades  on  comics.    I  was  getting comics  in perfect  condition  that had great value and  trading away comics that someone else wanted that only had limited value  to me.   I next  found myself brokering  trades between different friends who could not work out deals on their own. I would trade some of my comics for one or two comics from one friend  “A” and negotiate another deal to give one of the comics  I  got  for  a  couple of  comics owned by  friend  “B”.   I was multiplying my efforts and I did not even realize it.  In the two  years my  father was  stationed  in Hawaii  I  developed  a collection of over 1,000 comic books.  Without any money.   I simply  found what others  threw away as worthless and  sold or  traded  it  to  someone who wanted  it.   This was at  a  time when comics were selling for 25 cents.  Little did I know that I would recreate this same process over and over again.  As an adult I now focus on defaulted paper. 

 

        

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Graduating  To The Next Level   

 My father was also an entrepreneur.  He  liked to buy 

airplanes.    No,  I  am  not  talking  about  jets.    Rather,  I  am talking  about  single  and  twin‐engine  airplanes.        These airplanes were  not  new.    In  fact  the  airplanes  had  all  been involved  in  serious  crashes.   These were planes  that no one else wanted.   My father was able to buy them for pennies on the  dollar.    I  never  knew  exactly  how much  he  paid,  but  it could not have been  very much  since he had  to  support his family on the  income from his Army pay, which  is very  little. 

My dad would  take  these broken airplanes and  take  the best pieces from each plane and put them back together  into one  really  good  plane.    He  spent  his  time  on  weekends putting  the  planes  back  together.      I  remember  as  a  kid crawling  through  the  tubes  of  the  airplanes  running  cables from one point to another.  I did not realize it at the time, but my father was teaching me how to turn trash into gold. 

  

 When  the  planes  were  completed  he  would  lease 

them  out  to  people  who  wanted  to  take  flying  lessons  or people who wanted to rent the plane for a weekend trip.  My father also  liked to  fly his own planes and he would take  the whole  family  for  rides.    I  was  now  about  to  get  another lesson.  On one of our rides my dad asked if me or my brother wanted to fly the plane.  My brother, who  is two years older, jumped  at  the  opportunity  and  loved  the  flying.    I  on  the other  hand  was  terrified.      I  had  images  in  my  mind  of plummeting  the  plane  straight  into  the  ground  or  ocean.    I would not touch the controls.  My  father kept asking me on 

  

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 each trip and finally convinced me to try while I was sitting in his  lap.      I  did  not  know  what  I was  going  to  do.      I  was completely out of my comfort zone.  I sat in my dad’s lap.  He held  the  controls with me and we were  flying along.   It was great.  Then the impossible happened.  He let go.  I screamed. He  laughed.   The plane  shook  left and  right.   I  thought  “the end is here”.  Then I heard him telling me  in my ear “you can do it,  just believe you can”.  I said I don’t know how.  I am not as good as you are.   I  can’t do  this.   He  simply  said do  your best  and  “wing  it”.    Next  thing  you  know  I  was  flying  the plane. 

  

 I  realized  I did not have  to  know  everything my dad 

did about airplanes.   I did not have to have all of the training. That  it was OK  to  try  something  and not be  perfect  at  it.   I could in fact “wing it” on almost anything. 

  

 I remember that  first  flying day  like  it was yesterday. 

It  taught  me  that  in  order  to  get  over  my  fears  of  doing something new or different  I  just had to do  it.  This  leads me in to where I took my negotiating skills to the next level. 

  

 As I was continuing to dive for gold in the dumpsters I 

found  other  things  that  people  threw  away  and  started  to wonder  if  someone would  pay me money  for  this  trash.    I started  to  collect  all  of  these  items  from  the  dumpster  and stockpiled  them  in  our  backyard.      This  included  furniture, clothes, pots and pans, etc.  I then got my dad to rent a booth at a  local flea market.   I took all of my stockpiled  items, put 

  

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 them  in  the  back  of  my  dad’s  truck  and  off  we  went  to market.      The  table  at  the  flea market  cost  $5.00.      I  laid everything  out  .    While  I  was  laying my  items  out  on  the ground for people to see, I kept wondering  in the back of my mind  if  anyone  was  going  to  buy  anything  and  how  was  I going to pay back my dad the $5.00 for the spot.  That’s when something amazing happened.  People started to come to my area   and   look   at   things   even   before   I   had   completely unloaded all I had from the back of my dad’s truck.  Then they were asking “how much for the pan”, “how much for the bag of clothes”, and on and on.  At first  I said 10 cents for a pan. They  took  it.   Wow  that was  easy  I  thought.   I went  for  15 cents  on  the  next  item.    It worked  also.    I  kept  raising  the prices and  they kept buying.   By  the end of  the day  I made $15 dollars and had a blast doing it.  Now this was the way to make  money.    Over  time  I  was  doing  so  well  that  I  was making between $80 ‐ $150 each weekend at the flea market. I was rich. 

     

 

The Middle Years   

 I have never been a person who was afraid  to work 

hard to make money.   I just discovered early on that working hard and working  smart  is not necessarily  the  same  thing.   I also learned that no one was going to simply hand everything to me on a silver platter.  My family was not rich being in the military. 

   

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When  I was  12  years old my  father was  killed  in  an automobile accident.   I went  to  live with my mother and her husband who was also  in the Army.  The difference now was that  instead of  two boys  there were now  five and  I was  the youngest.    I was  last  in  the  pecking order, which meant my older  brothers  already  took many  of  the  opportunities  that might  be  available.    I  knew  I  had  to make  it  on my  own. When  I was  15 my  stepfather  got  stationed  at  Ft. Dix, New Jersey.  He lived near his family’s home in Pennington, NJ and commuted to the base for work each day. 

  

 Some of my  friends  came  from more well  to do and 

flat out wealthy  families.    To  keep up  I needed  to  generate cash.  I had paper routes, cleaned gutters of leaves on houses and  continued  to  do  flea markets.    I would  average  $100‐ $200 per weekend.  This allowed me to purchase my first dirt bike and do some of things my wealthier friends were able to do. 

  

 In my sophomore year  in high school my mother and 

I had a discussion about college.  You see no one in our family had  a  college  education.   My mother  told me  that  they  did not  have  enough money  to  send me  to  college,  even  state school.   They had  a  little money  that  could pay  for my  final two years of high school at a private school or use the money to pay  for ½ a year at college,  if  they  still had  the money.   I made  the  decision  to  attend  private  school  and  I  believe  it was  one  of  the  best  decisions  I  ever made.    I was  an  “A” student in public school.  In private school I was a “C” and “B” 

 

 

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 student.  When I graduated I was a “A‐“ student.  I still did not know what I was going to do for a living. 

  

 My  stepfather  convinced me  to  join  the  Army.      I  had 

always told myself  I would not  join the Army, but here  I was convinced out of  fear  to  take  the easy way out.   I  joined  the Army  right  out  of  high  school  and  was  part  of  the  Special Intelligence division of  the Army.   Even  in  the Army  I  found that  I was a wheeler‐dealer.   I  loved  to make  things happen and put deals together for people.   I worked with a  lot of the higher  brass  solving  problems.    And  boy  does  the  military have a lot of problems. 

  

 While  I was  in  the  Army  I  started my  college  education 

because  I  had  always  been  told  that  you  need  a  college education to get a job.  I was slowly falling into a trap. 

  

 After  I was  honorably  discharged  from  the  Army  I was 

trying to figure out how to make more money to buy a better 

car,  a house,  go on  skiing vacations, etc.   At  the  time  I was 

forced  to  live  in  a  room  in my parents  garage because  I did 

not have enough money to get a place of my own.  I got a job 

as  an  engineer, based on  some of  the  skills  I  learned  in  the 

Army.    I  realized  that  in order  to  get  ahead  I needed  to do 

something different.   Everyone kept saying  I would get more 

money and  a better position if I got a university degree.  So I 

started  to  go  to  night  school.    I was  a  full  time  student  at 

night with a full time job during the day.  Like I said I am not 

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 afraid of working hard if I can see the benefits down the road. 

Even though it looked like I was on the right track, I still felt as 

if something was missing.   I knew I did not want this full time 

job.   School was  fun, but  I did not  like punching a  time clock 

every day.   So  I started to  look  for other ways to replace  the 

income I was making at my job.  

   

Purely  by  accident  I  fell  into  the  “bad”  paper  business. 

Little  did  I  know  that  a  simple  experience  would  forever 

change my life.  

   

One day a friend asked if I would be willing to lend some 

money  to  an  associate  of  his  that  was  looking  to  start  a 

business on the side.  I lent her some money and she failed to 

pay it back.  I was forced to go to court to get back the money 

that she  failed  to  repay me.   I  followed all  the  right steps.   I 

went to small claims court.   Had my evidence and paperwork 

in  order,  and  as  expected, won  the  lawsuit  and  received  a 

judgment.  

   

I  was  excited.    Each  day  thereafter  I  went  home  and 

eagerly opened my mailbox  fully expecting  to  see my  check. 

It  never  arrived.    I  couldn’t  figure  out  what  was  wrong.    I 

mean, the judge said, right in the courtroom, that I won… he 

ordered  this  other  lady  to  pay  me  the  money  she  owed.  

  

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 There were  dozens  of other people  there who witnessed  it. 

But none of that seemed to matter… because  I never got my 

money.  

   

You see,  little did I know that  just because you receive a 

judgment doesn’t mean you’ll ever see a penny of the actual 

money?      And   that’s   how  my   whole   “defaulted   paper” 

business got started.  

   

I  finally  contacted  a  lawyer  and  he  said  “Sure,  I’ll collect  it  for  you.”  Of  course  he  kept  a  big  chunk  of  it. Afterwards  the  attorney  told  me  I  could  have  made  a  lot more money  if I had just secured the judgment to her house. What,  I  said?    What do  you mean  I  could have made more money?    The  attorney  told me  that  if  I  had  the  judgment secured   against   her   house   I   could   have   collected   the judgment  myself  or  I  could  have  left  the  judgment  sitting there  attached  to  her  house  gaining  interest  until  it  is  paid off.  Wow. That’s when  it dawned on me  that  this might be another area where people consider the documents that they have  to be  trash and  that  they might be willing  to give  it  to me for pennies on the dollar. 

 

           

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Learning My Lesson   

 Along  the way of making money with  this  particular 

type of defaulted paper  I was  reading every book  I could on real estate  investing and foreclosures.    I started to buy rental properties  and  foreclosures.    When  purchasing  real  estate  I often  came  across more  judgments  where  I  was  forced  to negotiate  discounts  on  the  judgments  in  order  to  buy  the property at a reasonable discount. 

  

 I  also  came  across  a  lot  of  mortgages  that  were 

owned  by  individuals  and  banks  where  the  owner  of  the mortgage  was  foreclosing  on  the  homeowner  because  the homeowner did not make their required monthly payment.   I started   testing   to   see   if   the  mortgage   holder   (the   one receiving the payments) would be willing to sell the mortgage prior to the auction date of the property.  Some were. 

  

 Learning  how  to  buy  the  paper  at  a  huge  discount 

leads  to  huge  returns.    Learning  how  to  “flip”  the  paper  to another  investor  generates  immediate  cash.      Combining  a defaulted  mortgage,   foreclosure   and   judgments   together gives you multiple profit centers on the same deal. 

 What if you want to get started right now, but you don’t

even have any money to get started. What could you do? You could find other investors to flip your defaulted paper deals too or approach some friends on family about investing their

 

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 IRA money (this topic is covered in more detail in later chapters). You could even give the deals to Heartview Financial and we would pay you a handsome finders fee when we bought the defaulted mortgage.

 Let’s  say  you  found  two  deals  and  flipped  them  to 

Heartview  Financial  for  us  to  purchase.    On  each  deal  you made a solid fee of $5,000.  Now you have the money ($5,000 x  2  deals  =  $10,000)  to  start  buying  deals  for  your  own portfolio.  You have $10,000  in seed capital to get started on your road to financial success. 

  

 You  see,  defaulted  paper  includes  more  than  just 

mortgages.      Defaulted  paper  can  include  mortgages,  trust 

deeds,  and  judgments.    With my  one  experience  at  lending 

someone  money  I  literally  fell  into  the  defaulted  paper 

industry.        Today we buy all  types of defaulted paper  from 

notes, mortgages, contracts for deed and others.  I found that 

you  can profit  from  real estate without ever  actually buying 

the property.  

   

I am not any  smarter  than you.   One  thing  I  found  that 

separates me  from my  friends  and  associates  is persistence. 

You see,  I never  like to quit.   That  is one thing  I got from my 

father; don’t quit.  Because I refuse to quit I was able to learn 

from my mistakes  to  the point where  I created a  full  fledged 

business where  I employ  a  lot of people  and  can provide a 

nice standard of living for me and my family.   

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I  ended  up  putting  myself  through  school,  my  way, 

without help from my parents.  I continued my education and 

over  the  next  several  years  ended  up  getting  an  Associates 

Degree  in  Computer  Science,  a  Bachelors  Degree  in 

Management Computer  Information Systems, and an MBA  in 

Finance  and  Real  Estate.      Part  of  my  drive  to  finish  my 

education was  that  no  one  in my  family  ever  had  a  college 

degree.   Through  school  and  going  to  seminars  I  found  out 

that real estate and specifically defaulted can be a wonderful 

thing.      

 

10 Times $1,000   

 What  this meant  to me was  that  I now had personal 

and financial freedom to do the things I wanted, not what an employer  told  me  to  do.      I  found  out  after  being  in  the defaulted  paper  business,  I was making more money  than  I was  at  a  regular  job.    It was  now  time  to  quit working  for someone else and be my own boss.  Easier said than done.   I was very nervous about giving up a steady paycheck where  I would now have  to rely solely on myself  for  income.   I could not  blame  anyone  else  if  I  did  not make  any money.    I  did however find more positives than negatives. 

 

   

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 I  remember one of  the  first defaulted pieces of paper  I 

ever  bought.      I  purchased  a  mortgage  from  and  elderly 

gentleman (Paul) who was 72 years old.  He had this $10,000 

mortgage   on   a   property  where   he   had   not   received   a 

payment for 18 months.   I was thinking to myself, how could 

you  let this go for so  long without getting any money.   James 

was the owner of the house who had not made any payments 

for 18 months.   In my discussion with Paul  I  found out  that 

James was  his  nephew.    Paul  did  not want  to  foreclose  on 

James because they saw each other at family gatherings since 

they  were  both  in  the  same  town.      Now  this  I  could 

understand.   Paul did not want any rumors going around the 

family about Paul and James and a deal that went bad.   Paul 

was also old enough that he really didn’t care anymore.  Paul 

did want  to  get  something  for  the mortgage, however.   We 

worked  out  a  deal  where  Paul  sold  me  the  mortgage  for 

$1,000.    I  told Paul  that  I would do my best not  to have  to 

foreclose  on  James.   As  I  gained more  experience  I  learned 

that it was always easier to rehabilitate a defaulted mortgage 

than it was to foreclose.  I thought I could help out James, but 

only  if  James was willing  to  take  responsibility.    Paul  and  I 

completed our paperwork  and  I purchased  the mortgage.    I 

then contacted James.  

   

James  was  actually  surprised  that  it  took  so  long  for 

someone  to make  him  pay  the mortgage.    James  originally 

got behind because he  lost his  job.   James was unemployed 

for 8 months.  After he got his new job he still did not have a   

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 way to bring all of the back payments current.   I negotiated a 

deal with  James where he would pay $3,000 now, make his 

regular  monthly  payment  plus  half  of  the  regular  monthly 

payment until the mortgage was brought current.  

   

So here’s the net result.   I got $3,000 right away.   I only 

paid  $1,000,  so  I  had  an  immediate  $2,000      ($3,000  paid 

immediately  by  James  ‐  $1,000  my   investment  =  $2,000) 

profit.    After  the mortgage  was  brought  current  I  sold  the 

note at  to another  investor who wanted the regular monthly 

payments.  My sale price was $8,000.  All told I made $10,000 

profit from an initial $1,000 investment.  

   

I  can’t   imagine  doing  anything  else.  Imagine  taking 

$1,000 and turning  it  into $10,000.   I bought bad paper.  But, 

was  it  really bad paper.   This  is a  situation where bad paper 

actually turns into good paper that you can sell at retail value.  

   

After that as my first deal  I realized  I did not want to do 

anything else. I know we have just begun and you may not be 

as exited as  I am, but as we  start  to  fill  in  the details about 

how  the  business  works,  how  you  benefit,  how  you  make 

these deals work for you and how you profit with no money 

out  of  your  pocket,  I  know  you  will  get  more  and  more     

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 excited.  As I start to paint more of a clearer picture for you, 

you will be as excited as I am.                                             

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CHAPTER THREE      

JACK AND JILL DO A DEAL     

I  read  a  book  somewhere  where  someone  once  said, 

“God is in the details.”   If that’s true then we need to look at 

some of  the details of a  typical deal  in America.   In order  to 

understand the complete picture I am going to paint a typical 

transaction on the buying and selling of a house.  

   

Before  we  can  talk  about  defaulted  paper  let’s  review 

what constitutes paper in general.  Paper generally refers to a 

promissory note (note) that  is secured by a mortgage or trust 

deed, which  is  then attached  to  real estate.   Paper  can also 

refer to:  

• Options  

• Lease agreements  

• Land installment contracts  

• Contract for deed    

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 For our purposes we are  limiting ourselves to mortgages. 

So  what  is  a mortgage?    A mortgage  (or  deed  of  trust)  in 

some states  is a written contract between a person who has 

sold property  (Jill) and  the person who bought  that property 

(Jack).  

   

So  let  me  introduce  you  to  our  characters.      Jill  is  a 

homeowner.   Jack  is a homebuyer.   Jill wants to sell and Jack 

wants   to   buy.     Let’s   see  what   happens  when   they   get 

together.  

   

Jill  is  trying  to  sell her house  for  the  very best price  she 

can get.   Jack  is  looking  for a house  to buy, but  is concerned 

about being able to qualify for a loan from the bank.  

   

Why should a home seller offer owner financing? Most people want all cash, but there are some enlightened sellers that do realize the potential for holding the paper themselves. To give you a few of the many, many reasons why people would want to hold mortgages:

  

 1)    If   the  banks   can  make  a  bucket   load  of  money 

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 charging interest over a long period of time, why not 

have a home seller do the same thing?  

2)    It  is  attractive  to  people  who  can  not  qualify  very 

easily with a bank  

3)    It  can  sell  a  property  quickly  because  of  no  delays 

with  paperwork  and  other  delaying  tactics  used  by 

the bank.  

4)    It can save the buyer a  lot of money because they do 

not  have  to  pay  any  fees,  points  or  other 

miscellaneous and sometimes outrageous fees.  

5)   Can get the buyer into the property faster  

   

It  is  a  challenging  time when  a  person  decides  to  sell  a 

house.   Sellers  frequently  face a  limited time period to make 

a sale.  Jobs, transfers, debts, moves and changes in our lives, 

create serious needs.  People always want to sell their homes 

as quickly as possible.  

   

Sometimes  market  conditions  are  not  good  for  getting 

what a buyer wants.   Of  course,  there are always  interested 

buyers, just not necessarily at the price and terms the seller is 

willing to sell their house.  The buyer may have funds to make 

a good down payment.   The problem with most buyers  is  in 

securing   a   loan.  Buyers   can   sometimes   have   problems   

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 getting a bank  loan.    It  is  a  long, drawn out process. This  is 

called  the  loan origination period.   It  is  the beginning of  the 

loan process.  This is the  initial contact wherein the borrower 

and  lender agree  to work  together  to  secure a  loan. Usually 

an  application  is  taken  and  an  initial  quote  is  given.  The 

borrower  is  asked  to  supply  documents  supporting  the 

information  that   is  included   in  the  application  and  upon 

which  the  quote  is  based.      There  are  lots  of  fees  and 

documents  that  must  the  supplied  such  as  verification  of 

employment,  verification of  deposits,  tax  returns, w2’s,  rent 

statements,    creditor    histories    and    many    more;    rigid 

guidelines    and    the    hassle    factor    can    be    tremendous, 

especially for a first time homebuyer.   A  loan  is based on the 

value of the property and the loan to value (LTV): The Loan to 

Value  is the percentage of what  is owed against the property 

vs. what the properties fair market value is.  

   

However,   when   an   owner 

of a property agrees  to provide 

the  financing  the  entire  picture 

changes. The door  is wide open 

to many buyers who get turned 

down by banks.   

 Let’s look at some of the documents a typical homebuyer 

would run across (depending on the state of course).    

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Trust Deed:  

A  trust deed means  just what  it  says.   The deed  to  the 

house  is  “held  in  trust”  until  the  balance  is  paid  off.    In 

addition to the trust deed, the person making payments signs 

a promissory note.   The note states all the  terms required of 

the  buyer  in  paying  off  the  remaining  balance  of  the  note. 

The note is then secured by the trust deed.  The house that is 

being bought secures the trust deed document.  

   

For  the  purpose  of  our  example  pretend  you  are  the 

home  seller.   When a  trust deed  is  created  it  involves  three 

parties:  

   

1) The Trustor: The Trustor is the homebuyer. They make you the monthly payments.

 

   

2)  The  Trustee:    The  trustee  is  an  independent  third  party 

who holds the deed to the house until the balance  is paid.   If 

the trust deed goes into default, the trustee is responsible for 

foreclosing on the house.  

   

3) The third person on a trust deed is you.  You're referred to   

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 as  the beneficiary.   The beneficiary  is  the owner of  the  trust 

deed  &  note.     They  have  all  rights  to   the  money  owed 

secured by the documents.       

Mortgage:  

A  mortgage  does  the  same  thing  as  a  trust  deed. 

However,  there  is no  trustee  involved.    Again,  a promissory 

note  is  signed  stating how  the debt on  the mortgage will be 

paid.  A mortgage document involves two people:  

   

1) The Mortgagor: this is the person the home was sold to. They will make the specified monthly payments.

 

   

2)  The Mortgagee:    this  is  the  home  seller.    They  own  the 

mortgage and note‐‐and have all rights to the money owed.       

Land Sale Contract:  

Land  sale  contracts  can  go  by many  titles  in  different 

states;    real   estate    contract,   property    sale    agreement, 

purchase  contract or  contract  for deed.   They  all mean  the 

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 same thing, so don’t get confused when people use different 

terms.   Just  find out what  terms  are used  in  your  state  and 

you  are  good  to  go.    With  a  Land  Sale Contract  there  is no 

promissory note.  All the terms on how the debt is to be paid 

are  in  the  contract.    The  seller when  using  these  contracts 

holds title to the house.  When the debt  is paid off the seller 

transfers  title  to  the  buyer.   The  buyer only  gets  title when 

you use a trust deed or mortgage.  

   

Some home sellers prefer land sale contracts because they can hold title. If they ever had to foreclose the process is easier. In most of the contracts it specifies an amount of interest that is to be earned on the mortgage. An amortization schedule can show you this figure. An amortization schedule is essentially a spreadsheet that shows how much interest and principal are paid on a mortgage over a given period of time, say 30 years for a typical mortgage. Amortization simply means the repayment of a loan through installment payments. When you create an amortization schedule it is a schedule of payments designed to liquidate a debt. The period may be over any agreed upon period of time. An example of this would be a standard 30-year mortgage amortization wherein a borrower would make 360 (12 months x 30 years) equal consecutive monthly payments at the end of which the original loan would be paid in full. When you hear the words amortization term people are referring to the number of months or years a borrower will be making payments to liquidate an original debt. The monthly payment is broken down. You'll see how much is interest and how much is

  

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 principle. The interest and principal will vary although the payment stays the same. The interest is very high at the beginning and decreases over time and the principal portion of the payment is very low in the beginning and increase over time.

 

   

The interest information is important for two reasons:  

1)    You  (the seller) must declare earned  interest on 

you income taxes.  

2)    You need to provide the total  interest figured to 

your  buyer.    They  can  file  it with  their  income 

taxes.  

   

A  contract  can  give  a  home  seller  a  steady  monthly 

income  over  several  years.      However,  it  is  a  long‐term 

commitment.    There  are  times when  that  commitment  can 

become  a  little  boring.    Especially when  the  need  for  cash 

comes up. 

 What you are about to learn is that the mortgage created

when the property is sold is an asset worth thousands of dollars--in one lump sum.

 If a borrower has less than perfect credit he would fall

into the category of a sub-prime loan. A sub-prime loan is any loan in which the borrower has challenges in obtaining

 

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 mortgage financing because of poor credit, hard to document income or assets, or any unique situation that would prevent them from obtaining funding through "conforming" lenders.

 Jill’s house  is on  the market  for  sale with  a  fair market 

value  (FMV)  of  $100,000.  Since  Jill  is  retired  she  is  more 

concerned with getting steady monthly  income  rather  than a 

lump  sum.   Jack  is  looking  in  the newspaper and  sees an ad 

for a house in the area he is interested in.  The house is listed 

as  for sale by owner  (FSBO).   Jack decides  to call on  the add 

and  see  if  there might  be  a  deal.    Jack  contacts  Jill  about 

buying her house and offers  Jill a creative way  for her  to get 

full  price  on  her  house  without  paying  a  real  estate 

commission.  

   

Jack has $30,000 that he can put down right now to buy 

the house from Jill.  Jack asks Jill if she will act as the bank for 

Jack.  What  this means  is  that  Jill will be using  the equity  in 

her  house   as  a   loan   to   Jack.     Equity   is  defined  as   the 

difference between what is owed on that house and what the 

house is worth.   If the house is worth $100,000 and Jill has a 

$50,000 mortgage on the property then her equity  is $50,000 

($100,000  property  value   ‐  $50,000  mortgage).     Jack  will 

make a regular monthly payment  to  Jill  just  like he would do 

to a bank.  Only he makes his payment directly to Jill, instead 

of  a bank.    Jill  likes  this  idea because  she  is  able  to  get her 

monthly payment, which  is the most  important thing to her, 

and she avoids having to pay taxes on the entire sale amount.  

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 Jill  therefore defers her  taxes on  the  sale of her house until 

Jack pays off the mortgage in full.  

   

Both  Jack  and  Jill  go  to  closing.    Closing  is  the  time  at 

which  all  loan  documents  have  been  signed  and  a  period 

wherein  the  borrower  has  the  right  to  rescind  (change  his 

mind) has passed and  transfer of ownership of  the property 

has occurred.  A loan has closed when funds are disbursed to 

the  appropriate  parties  and  the  creditor  for  the  amount  of 

the “closed” loan has placed a lien against the property.     

Jack puts $30,000 down and buys the house. Jack now has a $70,000 first mortgage (first loan) on the house at 10% amortized over 30 years. A first loan is what most people think of when someone says mortgage. It is a loan in first position against a property that is usually the balance of the loan used to purchase a property in the first place. All other loans against the property are subordinate to this loan. Jack’s principal balance is $70,000. Principal balance is another way of saying the amount of money borrowed or the amount of the loan.

 Jack now has $30,000 equity in the property. Equity is

just the difference between what is owed against a property and its fair market value (FMV).

 

     

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 Jack’s monthly payment  is $530.30.   Jack, as part of his 

purchase  signs  a  promissory  note  that  lays  out  all  of  the 

obligations  (for  paying  back  interest,  monthly  payments, 

length of note, fees for  late payments, penalties for failure to 

pay, and location where he should send his monthly payment 

to  Jill)  as well  as  a mortgage.    This mortgage  encumbers or 

pledges  the  house  Jack  bought  as  collateral  to  ensure  that 

Jack  will  make  the  monthly  payments.      The  mortgage  is 

recorded at  the  local  county  courthouse,  in  the  land  records 

department.  

   

If Jack does not pay as he agreed, Jill may as a last resort 

and   at   her   option,   foreclose   on   the  mortgage   sell   the 

property  at  a  foreclosure  auction  to  pay  off  the  mortgage 

owned  (held)  by  Jill.    After  the  auction,  Jill will  be paid  the 

proceeds from the auction to satisfy any monies owed by Jack 

on   the   mortgage,   plus   interest   owed,   back   payments, 

attorney  fees, court costs and any other  fees associated with 

the foreclosure.  

   

From  this  point  on  when  we  use  the  terms  “paper”, 

“mortgage”,  “lien”,      “trust  deed”,  “contract  for  deed”  or 

“note,” we will be referring to both documents the mortgage 

and the note.       

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Why Defaulted Paper     

There are  investors all around the country that buy and 

sell  paper  where   the  owner  of   the  home   is  making  his 

monthly    payments   on    time.  The 

defaulted  paper  area  offers  dramatic 

yields    and    very    little    competition. 

There  are  few  investors  who  buy 

defaulted   paper   (like   our   firm‐Heart 

view Financial).  

   

So what  exactly  happened?    Jill  sold  her  house  at  full 

value.    Jack  bought  a  house without  qualifying with  a  bank 

and  having   to  borrow   the  money.     Jill  will  now   receive 

monthly payments for the next 30 years until the note  is paid 

in  full.   Over 30  years  she will actually  receive  around  three 

times  the  $70,000  balance  or  $210,000.      The  reason  she 

receives  $210,000  is  that  over  30  years  Jack  is  making 

payments on the original mortgage amount plus interest.  It is 

the  interest on the mortgage that makes the  total funds that 

Jill receives so large.   

 What happens  if the bank  is  involved?  The situation  is a 

little different, let me show you how.   

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CHAPTER FOUR     

THE BANK GETS INVOLVED       

Let’s  use  our  previous  example where  Jill  is  selling  her 

house.  Jill’s house is on the market for sale with a fair market 

value (FMV) of $100,000.    Jack  is using a real estate agent  to 

find a house that he and his family can  live  in.  While  looking 

at houses Jack takes a tour of Jill’s house and falls in love with 

it.      Jack  immediately  has  the  real  estate  agent  draw  up  a 

purchase  agreement.      The  purchase  agreement  is  a  legal 

document that stipulates that Jack is willing to buy Jill’s house 

under  certain  conditions.   These  conditions  include,  but  are 

not  limited  to,  purchase  price,  condition  of  the  property, 

warranties, inspections and any contingencies of the buyer.  

   

Jack has $30,000 that he can put down right now to buy 

the  house  from  Jill.    Jack  goes  to  a  bank  and  applies  for  a 

mortgage.  He goes through the entire process of applying for 

a  loan.    Jack  completes  the  application  for  a  loan  and  pays 

some  initial fees, such as an appraisal fee.  The appraisal fee 

is  a   fee   the  bank  charges   to  establish  the  value  of   the  

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 property  compared  to  other  similar  homes  in  the 

neighborhood.  This appraisal value  is how the bank will base 

its   loan   to   Jack.      In   addition,   Jack   is   asked   to   supply 

documents supporting the  information that  is  included  in the 

application  and  upon which  the  quote  is  based.   There  are 

lots  of  fees  and  documents  that must  the  supplied  such  as 

verification  of  employment,  verification  of  deposits,  tax 

returns,  w2’s,  rent  statements,  creditor  histories  and many 

more;  rigid  guidelines  and  the  hassle  factor  can  be 

tremendous, especially  for a  first  time homebuyer.      If  Jack 

had  any  negative  marks  on  his  credit  report  it  brings  up 

several other issues. 

 Generally, here is what people can expect with negative

information on their credit reports. Accurate negative information generally can be reported for seven years, but there are exceptions:

 • Bankruptcy information can be reported for 10 years; 

• Information  reported because of an application  for a 

job with  a  salary of more  than $20,000 has no  time 

limitation; 

• Information  reported  because  of  an  application  for 

more  than  $50,000 worth  of  credit  or  life  insurance 

has no time limitation; 

• Information   concerning   a   lawsuit   or   a   judgment 

against  you  can be  reported  for  seven  years or until 

the   statute  of   limitations   runs  out,  whichever   is 

longer; and    

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 • Default    information   concerning   U.S.   Government 

insured or guaranteed student  loans can be  reported 

for seven years after certain guarantor actions. 

 Some other rules to keep in mind:

 

 The length of time a negative mark can stay on your

credit report starts from the time you were late or the late payment went into collection, not from the last time you made a payment on the account. Some collection agencies update their reporting status on you to keep the account active with the bureaus to extend the time the account appears on your report. Very crafty and underhanded of them, because most often the account is updated and the period of time the account is active appears to be extended. Challenge this! If you do, bureaus will correctly remove negative information 7 years from the date of origination. In other words, paying a collection will not keep it on your credit report for a longer period of time if you are diligent.

 

  

If  Jack has some negative marks on his credit  report the 

bank may  turn  him  down  for  the  loan  or  at  the  very  least 

charge him a higher  interest  rate  for  the  loan.   In any event 

Jack  does  not  have  the  ability  to  take  care  of  his  problem 

now.      This  is  a  serious  situation  that  could  jeopardize  his 

purchase  of  the  house.      The  benefit  of  working  with  an 

individual  is  that most  individuals will  overlook  a  lot  of  the 

credit  issues  if  Jack  has  enough money  to  put  down  on  the 

purchase  of  the  property  or  oftentimes  individuals  do  not 

even  check  the  person’s  credit.   Why  not?    Because most 

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 people  do  not  know  how  to  check  a  persons  check  so  the 

simply ignore the issue.  

   

Both  Jack  and  Jill  go  to  closing.   The  closing  is  typically 

held at  a  title  company, which has drawn up all of  the  legal 

documents that Jack will be required to sign.  And  let me tell 

you,  there  are  a  lot  of  documents  to  sign.    I  know  the  last 

time I bought a piece of property and used bank financing my 

hand was tired before I finished signing all of the documents.  

   

If Jack were to buy a home that was financed by a bank, 

Jack  signed  a promissory note on  the  day  he  purchased  the 

home to secure the debt. 

 Jack puts $30,000 down and buys the house. Jack now

has a $70,000 first mortgage (first loan) on the house at 10% amortized over 30 years. Jack’s principal balance is $70,000. Therefore, he also has $30,000 worth of equity in the property. This time Jack must makes his monthly payment directly to the bank. Everything is going along just fine until one day Jack gets laid off from his job. He is now out of work and must rely on his savings to cover all of his expenses including paying the mortgage on the house.

 If Jack does not pay as he agreed, the bank will inevitably 

foreclose on  the house as a way  to  get back  the money  the 

bank loaned to Jack.  Before they foreclose they will of course  

  

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 contact  Jack  to  try  to  get him  to  pay.    At  first  the  calls  are 

friendly.  Later, as each month goes by without a payment the 

calls get more insistent.  Eventually the banks computer takes 

over.   You see  to a  large organization  like a bank people are 

just  numbers.      There  is  not  much  of  a  human  element 

involved.  Unlike a situation with Jill who could work one‐on‐ 

one  with  Jack  to  help  him  get  back  on  his  feet  and  start 

making payments again.  

   

In  the  foreclosure  process  the  bank  will  advertise  the 

property for sale in a local newspaper, which makes everyone 

who  reads  the  paper  aware  of  the  pending  foreclosure.    In 

most  areas  the  homeowner  has  the  right  to  cure  a  default. 

For  instance  in  Colorado,  if  the  loan  default  is  due  to 

nonpayment,  then  the  borrower  can  give  notice  of  an 

intention  to  cure  the default  at  least  seven days before  the 

foreclosure  sale.        The  trustee  must  then,  on  request, 

investigate and tell the borrower the sum due on the loan.  If, 

on  or  before  12:00  noon of  the  day  before  the  date  of  the 

sale,  the  owners,  parties  or  borrowers  pay  to  the  officer 

conducting  the  sale  all  delinquent  principal  and  interest 

payments  that are due as of  the date of  such payment, plus 

costs,  expenses,  late  charges  and  attorney’s  fees,  but  not 

future  principal  (since  no  extra  debt  is  allowed  due  to 

acceleration) then the foreclosure must be stopped. This right 

may  be  exercised more  than  one  time.     Keep  in mind  the 

bank is only entitled to money that it is owed.  No more.   This 

includes  the  amount  of  the mortgage,  plus  interest  owed,   

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 back payments, attorney fees, court costs and any other fees 

associated with the foreclosure.                                             

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 There are two types of foreclosure  in the United States. 

Judicial Foreclosure and Non‐Judicial foreclosure.      

Non-Judicial Foreclosure  

 Let me actually break down the foreclosure process into

20 easy to understand steps. These steps should not be used as legal advice. Most states have a non-judicial system to carry out a foreclosure. Meaning that no court procedure is required for a lender to take back the property. Few states carry out a formal judicial process. The following steps will outline what is all typically involved in a non-judicial foreclosure.

 1.) MISSED PAYMENTS OCCUR. Usually after the

third missed payment the lender will initiate a foreclosure. Issuing a Declaration of Default and Demand for Sale, which is passed on to the foreclosure trustee, does this.

 2.) DEPOSIT DEED OF TRUST AND NOTE WITH

TRUSTEE. The lender (beneficiary) deposits the deed of trust and note with a foreclosure trustee. If there has been an assignment of the deed of trust, such assignment must also be deposited. If the original note has been lost, foreclosure can still be commenced, but the beneficiary must post a lost instrument bond in most cases.

    

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 3.) The trustee must examine the documents for any

special provisions other than those supplied by law.

 4.) The trustee prepares the NOTICE OF DEFAULT,

which must set forth specifically the nature of the breach by the homeowner. It does not have to specify the amount of the default, just the nature of the breach.

 5.) The notice of default must then be executed (signed)

by either the trustee or the beneficiary. It is usually considered better to have in executed by the beneficiary(s) by most title companies.

 6.) Following execution, the trustee will cause the notice

to be recorded in the county where the property is located. In some states such as California, this notice does not even have to be notarized, which makes it one of the few documents that do not have to be notarized to be recorded.

 7.) After recording the notice, the trustee should obtain

evidence of title, which determines all persons who have filed a request for notices of default and notices of sale, all other persons legally entitled to notice by mail (in essence all other creditors), whether the owner of any interest is either bankrupt or in receivership, and whether there are any subordinate Federal Tax Liens. All of this information is obtained by the trustee as a trustee sale guarantee, issued by a title company. This

 

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 Guarantee includes all of the information needed to properly conduct the foreclosure.

 8.) 10 DAY NOTICE BY MAIL is made by certified or

registered mail, return receipt requested, to all parties specified in step seven above. These parties include junior lien holders as well as any others who have recorded a Request for Notice form with the county recorder. It is the trustee's obligation to make these mailings. Some of these requests may be in the Trust Deed itself, and the trustee must take special note of this. Note: The Trustor, or borrower, is someone whose request for notice is most often buried in the Trust Deed.

 9.) PERSONAL SERVICE, OR SERVICE BY

PUBLICATION WHEN REQUIRED. If the Deed of Trust does not have a sufficient address for mailing the Notice of Default to the Trustor, then this must be accomplished by hand delivery or published in a newspaper of general circulation in the country where the property is located. If published, it must be published once a week for four weeks, commencing no later than ten days from the date when the Notice was recorded.

 10.) ONE MONTH NOTICE BY MAIL. Within one

month of the recording of the notice of default, copies must be sent to the following: the successor in interest (current record owner) as of the recording date of the Notice, the beneficiary of any junior lien

  

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 to the one being foreclosed, any assignee of such junior lien described above, the vendee of any contract of sale or the lessee of any lease of the estate or interest being foreclosed which is recorded and which is subordinate to the deed of trust being foreclosed, the successor to any interest in the above. The notices to these parties must also be mailed by registered or certified mail, return receipt requested.

 11.) REINSTATEMENT WAITING PERIOD. The

beneficiary must then wait three months from the recording of the notice of default before he proceeds any further. During this time, the Trustor may reinstate the mortgage by simply catching up the back payments plus the costs already incurred in the foreclosure proceedings. The loan may also be reinstated by one of the junior lien or trust deed holders. The made-up payments then become part of what the Trustor owes him, and the junior lien holder may then initiate foreclosure proceedings of his own. When the foreclosure proceedings are stopped by the reinstatement, a rescission is filed by the trustee to stop the proceedings.

 12.) FINAL CHECK BEFORE NOTICE OF SALE IS

ISSUED. After the three months noted above have elapsed, the trustee then contacts the beneficiary to confirm that the default continues and has not been waived, which may be done by accepting a payment on the obligation after the filing of the notice of

  

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 default. In most cases, though, the acceptance of a payment not sufficient to make up the default does not constitute a waiver. The waiver is usually granted only where the Trustor can prove he was misled by the beneficiary into believing a partial payment would stop the proceedings. If the default has not been cured, the trustee should contact the title company for a title bring down to see if any recent bankruptcies or federal tax liens have appeared. A bring down is a quick title search without all of the normal documentation and detail. The trustee must then get an affidavit from the beneficiary setting forth factual data that leads to the conclusion that the Trustor is not a member of the armed forces, nor has been a member of the armed forces within the past three months from the date of his discharge, unless it is pursuant to a written agreement or court order.

 13.) PREPARATION AND PUBLICATION OF THE

NOTICE OF SALE. The trustee must then prepare and publish, in a newspaper of general circulation in the country where the property is located a notice of sale. The notice must be published once per week for a period of at least 20 days prior to the sale date.

 14.) POSTING NOTICE OF SALE. The notice must be

posted in a conspicuous place both on the property and in at least one public place in the city where the property is to be sold. The trustee should then prepare and have executed an affidavit of posting.

  

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 15.) MAILING THE NOTICE OF SALE. The trustee

should mail by certified or registered mail copies of the notice of sale to all of those that were entitled to receive both the ten-day and the one-month mailings.

 16.) The trustee must RECORD THE NOTICE OF SALE

with the county recorder at least fourteen days prior to the date of the sale. The trustee may also postpone the sale at any time up until the date of sale at his discretion or if the beneficiary so instructs him. The trustee need merely announce the postponement at the original time, date and place of the sale, and give the new date and time (the place must be the same).

    

17.) TRUSTEE'S SALE. The trustee will start the sale by reading aloud the complete notice of sale. He will announce the amount of the opening bid, which is usually the value of the unpaid principal and interest on the trust deed being foreclosed, along with any advances and trustee's fees paid. The bid price must be paid at the drop of the hammer, either in cash, money order, certified check, or cashier's check. If the beneficiary is the purchaser, the balance due on his trust deed may offset against the bid price. A junior note holder, however, cannot offset his trust deed in this way. The trustee does not guarantee title nor express an opinion as to the condition of

  

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 title. During the sale, the trustee has the right to require every bidder to show evidence of his ability to deposit with the trustee his full bid in cash prior to accepting the bid. If the last and highest bidder fails to deliver to the trustee the amount of his final bid in cash or the equivalent of cash in satisfactory form, such bidder shall be liable to the trustee for all damages which the trustee may sustain by the refusal to deliver to the trustee said amount of the final bid, including any court costs and attorney's fees

 18.) PREPARATION OF TRUSTEE'S DEED. This deed

may be delivered to the highest bidder at the close of the sale and the payment of the bid price, or the trustee may record it as a courtesy.

 19.) ENDORSEMENT OF NOTE. The trustee must

place on the face of the note the amount of the indebtedness and the amount for which the property was sold.

 20.) DISBURSEMENT OF SALE PROCEEDS. Should

the property sell for more than the amount of the fees, and the principal and interest owed, then the proceeds of the sale shall be paid first to any junior lien holders, and when these are satisfied, to the Trustor or current owner of record. If the property has been homesteaded, the Trustor comes before the junior lien holders up to the extent of the homestead exemption, and then to the junior lien holders. State

  

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 and federal tax liens come ahead of the homestead exemption, though.

 These, then, are the 20 steps of the foreclosure process.

In any real estate investing involving foreclosed property, these points are important to keep in mind.

   

 

Judicial Foreclosure  

Let me break down the foreclosure process into easy to understand steps. These steps should not be used as legal advice.

 Judicial foreclosure begins when the lender files a

lawsuit. The lender will sue the borrower and any person who has a claim to the ownership or a possession interest. The lender, as plaintiff, has a summons and a complaint served on the borrower. The summons commands the borrower to come to court and answer the lender’s complaint; the complaint is the lawsuit proper, which describes the lender’s legal and factual basis for foreclosure. A notice of lis pendens must be filed. The lis pendens is a notice that a lawsuit is pending, the outcome of which affects title. Often, the borrower fails to answer. In that event, the court will appoint a referee to compute a figure for the foreclosure. The court may then sign a judgment of foreclosure and sale. If the borrower appears and defends against the lawsuit, then the court will determine the merits of the defense. The referee will need an oral

  

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 hearing. If the lender wins, then a judgment of foreclosure and sale will be awarded.

 Typically the foreclosure sale is advertised for 4 to 6

weeks. The sale is made by public auction to the highest bidder. The lender may bid, as well. The lender must distribute the proceeds according to the terms of the judgment signed by the judge. A referee will normally hold surplus money.

 Let’s examine the judicial foreclosure process in more

detail. When a property goes into foreclosure, as is the case with Jack when he falls behind on the payments to the bank, state law dictates the actual foreclosure process. You need to become familiar with the foreclosure process in your area.

   

In most states, properties are held by deed of trust. In these "trust states", the foreclosure process is much faster than in non-trust states such as New York. Foreclosures are auctioned off at the County level via Trustee Sales arranged by the lender without the involvement of the State Courts. These are "non-judicial foreclosures” (meaning that the court is not involved). Therefore, the time between a Lis Pendens of Mortgage Default and the foreclosure Auction can be as quick as several months.

 

  

In New York, loans for real property are secured through mortgages rather than through deeds of trust. New York, unlike trust states, is what is called a judicial foreclosure state. Only 10 states, Maine, New York, Connecticut, New Jersey,

 

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 Pennsylvania, Ohio, Indiana, South Carolina, Florida, and Louisiana and North Dakota are judicial foreclosure states. Simply put, most foreclosure proceedings in New York must go through the courts before a property can be sold at public auction. On average, it takes 12-18 months after a lis pendens (notice of mortgage default) has been filed for a foreclosure proceeding to move through the court system and the property to end up on the auction block.

   

What is the reason it takes 12-18 months for a foreclosure proceeding to move through the courts? In a nutshell, all parties named in the action (including other mortgage holders, creditors, tenants of the owner, etc.) must be served with papers.

   

Why is it important to know the difference between judicial and non-judicial foreclosure? Because, you need to know the laws of YOUR state when educating yourself about the foreclosure process and investment strategies. Many books, foreclosure seminars and infomercials provide information that focus exclusively on deed trust states and Trustee Sales.

 Let’s look at some of the steps in a little more detail for a judicial foreclosure.

 1. Lis Pendens 2. Foreclosure auction 3. Bank ownership or R.E.O (real estate owned)

 

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Lis Pendens  

 Lis Pendens is Latin for "suit pending". lis pendens for

mortgage default is the first filing made during the foreclosure process. Properties in this stage are often referred to as "Pre- foreclosures ". After a mortgage has gone unpaid for 3 consecutive months, the lender (Plaintiff) files a lis pendens (notice of mortgage default) and the mortgagor (Defendant) is served with a summons and complaint. In simple language, the mortgage holder (now the Plaintiff in the action) sues the borrower (now the Defendant in the action) for non-payment of the

   

Foreclosure Auction

mortgage.

 If the mortgagor does not respond to the summons and

complaint issued by the lender, then the lender's attorney must submit a report to the court stating the facts of the case and requesting that the court appoint a referee (the attorney who ultimately conducts the foreclosure sale). The referee issues a report that includes a computation of the amount due the lender. The judge then signs a Judgment of foreclosure and Sale that directs a Notice of Sale to be published and the referee to sell the property at auction. The court then assigns a date and time for the auction and the auction date and time is

    

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 published in the Notice of Sale in a local newspaper approximately 4 weeks prior to the auction.

 If no one at the auction bids the lender's minimum (or the

"upset price") the property reverts back to the lender. The referee executes a deed conveying ownership of the property back to the lender. The property then becomes part of the lender's inventory of homes, and is referred to as an R.E.O. (Real Estate Owned). Most lenders then farm their inventory of homes out to local real estate brokers for resale. These are the types of properties that are often advertised by real estate brokers as

 

    

What happens at the auction

"foreclosures".

  

 Let’s  assume  for  a moment  that  you  are  the  potential 

buyer   going   to   an   auction   to   place 

purchase   one   or  more   properties. 

bids   and   hopefully 

Keep   in  mind   that 

foreclosure properties are  "as‐is, where‐is"  for  cash or  cash‐ 

equivalent.  Use  extreme  caution  when  buying  at  trustee's 

sale.   You'll  own  it.   You  need  to  know  everything  you  can 

about the property!!   

 Information    is   everything!  Up    to   date    accurate 

information is essential for investing in foreclosures.    

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THE SALE  

   

The auctioneer will ask if anyone wants to qualify, either 

before all properties are announced or before individual 

properties are announced.  To qualify, you will need to show 

the auctioneer cash or cashier's checks sufficient to cover any 

bids you will be making.  Some Trustees specify checks are to 

be made out to them, usually you can get cashier's check 

made payable to you, then if you are a successful bidder, you 

endorse them payable to the Trustee.  Common practice is to 

have large checks to cover most of the expected bid, with 

smaller checks to cover increases in the bidding.  You really 

do not want to have one check for $300,000 if you are going 

to be bidding on a $150,000 house or if you will want to buy 

more than one property.  Once you sign your check over, you 

will not have the surplus funds available for a while. When 

bidding and qualifying, keep in mind that anyone around you 

is a prospective bidder, if you allow them to see the 

maximum amount you can bid to, you have weakened your 

position.  The same holds true for notes you have written or 

numbers, keep your information private!  

  

BIDDING       

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 The auctioneer will ask  if anyone would  like to bid when 

they  are  auctioning  a  property.    If  it  is  a  property  you  are 

interested  in,  your  bid  should  be  a  dollar  over  the  opening 

bid.    The property will not  sell until  the  third  call and  some 

people  like  to  wait  and  see  if  anyone  else  is  showing  an 

interest.  Relax; wait to see if other bidders are going to jump 

in,  if no one does put  your  "dollar over" bid  just before  the 

third  call.          If  other  bidders  are  interested  in  the  same 

property, bids will go up usually in hundred dollar increments. 

Know  the maximum bid  you are willing  to place  and do not 

exceed  that  number.     It's  very  easy  to  get  involved  in  a 

contest of who's going to win the bid, if you are investing, you 

need   to  make   a   profit,  not   prove   you   can   bid   higher.     

AFTER THE BIDDING  

   

If  you  are  the  successful  bidder,  you will  need  to  sign 

checks  over  to  the  Trustee.  Usually,  after  all  sales  are 

complete,  the  auctioneer will write  you  a  receipt,  ask  how 

title  is to be held and you'll be done.  The Trustee can record 

the  Trustee's  Deed  for  you  or  they will  send  you  the  deed 

along  with  any  excess  funds  from  your  checks.      Sales  are 

sometimes  invalidated  by  legal  reasons  such  as  last minute 

bankruptcy, if so, you will receive your funds back.  Expect to 

have everything done one to two weeks after the sale.     

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 I know  that was a whole  lot of  technical detail but  it  is 

important  for  you  to  understand  the  process  of  foreclosure 

when you are considering investing in defaulted paper.  

   

Banks  can  be  a  great  resource  for  finding  defaulted 

paper.  Yes, we can buy from the bank at a discount but it can 

be more  difficult  than  working  with  an  individual  that  was 

acting  as  the  bank    (Jill  in  our  previous  example)  and  the 

buyer (Jack).  When dealing with the bank you need to  locate 

the  right  bank, make  contact  with  the  appropriate  parties 

who  have  the  authority  to  sell  you  the  paper,  but  most 

importantly sell  it  to you a  large discount.   Not all banks are 

willing  to  take  large  discounts.      Remember  most  banks 

consider  the homeowner  just  a number  in  their  system.   So 

they don’t really have an  incentive  to give you the best deal. 

An individual needs cash now and will work with you and may 

not have the ability to do the auction on their own.  

   

The upside to all of this is that you could actually end up 

with  the  property  for  pennies  on  the  dollar.      An  easy 

alternative  is  that you could bring  the deal  to Heartview and 

when we buy it we will pay you a substantial finders fee.   

 Let’s  take  a  look  at  some  of  the  options when  you  get 

involved in finding a defaulted paper deal.  

  

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CHAPTER FIVE  

       

WHERE YOU COME IN  

     

How  would  you  like  to  make  money  on  defaulted paper without using any money?  What  I am about  to  cover are some specific techniques for you to make money, I mean a lot of money, on the defaulted paper that you find. 

  

 Let’s  suppose  that  Jill  has  a  house  worth  $100,000 

and has  the house  listed  for  sale  through a  local  real estate agent.   It turns out that Jill owns her house free and clear (no debt  on  the  property)  since  she  has  lived  in  the  house  for many years. 

  

 Jill  is  looking  to  retire  and  is  very  nervous  about 

putting all of the sale proceeds from the house  into the stock market.    Jill would prefer to have a nice steady return on her cash profit from the sale. 

     

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 Jill  receives  a  call  one  day  from  a man  named  Jack 

who  is  interested  in  the  house.      Jack  it  turns  out  is  self‐ employed  but makes  a  very  good  income.    The  problem  is that he does not  fit  the  typical mold of what banks want  to see when  they  consider  lending money.     In essence,  Jack  is going  to  have  a  tough  time  getting  a  loan,  even  though  he could make the mortgage payments without any problems. 

  

 Jack  now  asks  Jill  if  she will  act  as  a  bank  and  take 

back  a mortgage on  the house.        Jack will make his  regular monthly payments  to  Jill  and  Jill will now  receive  a monthly check from Jack.  To make  it even more tempting for Jill, Jack has  offered  to  put  up  $30,000  as  a  down  payment  on  the property.   Jill and  Jack  come  to an agreement where  Jill will carry back a note for $70,000.  This is the difference between the $100,000 sale price and the $30,000 down payment made by Jack. 

  

 Why would Jill even consider doing this? 

  

 1.    She  defers  paying  any  taxes  on  the  profit  she 

makes from the sale of the house.  

2.    She gets better than average rates of return on her money 

 

3.    She is nervous about the stock market  

4.    CD’s are only paying 2% ‐ 4%    

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 5.    Jack  is offering  to pay her 10%  interest on  the 

loan  

6.    She also get  the house  she  lived  in as  security for the loan to Jack 

  

 Everything is going along great for a couple of years.  Jill is 

getting  her  regular  monthly  payment  on  the  note  and everyone is happy.   One day Jack gets hurt on the job.   Since he  is self‐employed he needs to work to make money and he can’t do  that because  he  is  hurt.     So  Jack  stops  paying  the note on the property.    Jill calls Jack trying to get him to start making  payments  again.        Six months  go  buy without  any payments.   Jill is running out of savings and needs a way out. 

  

 What will she do now? 

                      

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 That’s Where You Come In 

  

 Could  Jill  sell her note  to  someone else who will  try and 

get  Jack  to  pay  and  then  receive monthly  payments  for  the next 30 years?    Many people don’t realize  it, but she could. You will buy  the note  from  Jill  for a  lump sum of cash, but… you don’t pay  full price.  You buy  the note at a discount and here is why. 

  

 If  I offered  to  give  you  a $10  bill or  a $20  bill  free,  you 

would obviously  choose  the  $20  bill.     If  however,  I offered you the same choice except that you had to wait 15 years to get the $20 bill you would probably take the $10 rather than wait 15 years for the $20.  Almost everyone would.   The  idea behind this example  is that the $10  is worth more today than it is sometime in the future.  It stands to reason then that the mortgage  payments  that  we must  collect  from  Jack  in  the future  are worth  less  than  face  value.   Add  to  that  the  fact that  Jack  has  stopped making  the  payments  altogether  you can  see  that we must  discount  the  value  of  the  note  if  Jill wants  it all now,  in  today’s dollars.   So  let’s see how we can make some money with this. 

  

 Since Jill needs cash she is willing to take less than what is 

owed so that she can get a lump sum that she can now invest somewhere else. 

      

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 We have a  student named Steve  (this  is you) who  found 

out about  the default and provided  the  information  to us or contacted  Jill directly.    How did  Steve  find  Jill.    There  are  a number of ways  to  find owners of defaulted paper.   Let me give you  two great ways  to  find owners  in distress. They are in  distress  because  the  note  holder  is  not  receiving  any payments  and  in most  cases has no  idea where  they  should turn  to  resolve  the  problem.      I  like  to  run  ads  in  local newspapers.  These ads are simple and easy to read.   I like to place  the ad  in  the money  to  lend  section of  the  classifieds. The ad can go like this: 

  

 “Not Receiving Payments On A Mortgage?  Top Dollar Paid For Non‐Paying Notes And Mortgages.  Call  MikeRickRick At …..” 

  

 Another  technique  for  finding  defaulted mortgages  is  to 

look  for  people who  took  back  a mortgage when  they  sold their house.  An easy way to find these people  is to go to the land  records  office  at  your  courthouse.   You  are  entitled  to look  at  all of  the  information  in  the  courthouse  for  free.   If you are not sure how to find what you are  looking for, simply ask  the  court  clerk  to help you.   I have  found  the people at the courthouse  to be very helpful.   Try  to ask  for help when they  are  obviously  not  swamped  with  lots  of  other  people asking questions.  Remember, there is a phrase that says “you catch  more  bees  with  honey.”      So  be  nice,  polite  and professional and you will get what you need.  Simply  look for mortgages where the owner of the mortgage is an individual. 

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 Write  down  their  address  and  send  them  a  letter  offering them  cash  for  their mortgage.    Be  sure  to mention  in  you letter that you also buy delinquent or defaulted paper where the  note  holder  is  not  receiving  their  regular  monthly payment. 

  

 You can say this by: 

 • Are you having problems receiving payments on 

your mortgage  

• Is your payor slow  

• Is he behind  

• Does   it   look   like   he  will   get   behind   in   his payments. 

 • We can help 

  

 These phrases  are  key  to getting  the note holder  to  call 

you and sell the mortgage.  I have found that there is always a percentage of people who have notes that are in default. 

  

 Let’s jut say that 90% of all loans are done by banks.  That 

leaves 10%.   It seems  to me  that  there are always more and more  bankruptcies  and  foreclosures  happening  around  the country.   This 10% represents a huge number of paper deals. There  are  always  a  percentage  of  deals  that  fall  into  the defaulted category.  Most investors do not want to deal with 

  

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 defaulted paper even  if they knew how, which most  investor do not.    It means to you that you have no competition.  You have more deals  than you can possibly handle.   Think about doing this  in your town or multiple cites by running ads.  The upside is limited only by your efforts. 

  

 Remember,  most  people  have  no  idea  that  they  could 

even  sell  their mortgage much  less  sell  a mortgage  where someone is not making their payments. 

  

 So let’s get back to our example.   Jill is afraid to foreclose 

on the note because of several possible reasons:  

1.    Does not want to foreclose  

2.    Does not know how to do it  

3.    Afraid it costs to much  

4.    Does not have the money to foreclose  

5.    Just wants out   

 Steve  contacts  Jill  and  offers  her  $40,000  for  the  note. 

Keep  in  mind  that  the  normal  range  for  buying  defaulted mortgages  is around 20 cents to 50 cents on the dollar.   You will take over everything.  She no longer has to deal with Jack or  worry  whether  or  not  she  will  get  her  much  needed monthly payments.  She does not have to worry about how to come up with  the money  to  foreclose  if  it  is  required.   She 

 

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 does  not  have  to  worry  about  working  with  lawyers  or understanding the legal system.  She does not have to wait 30 years to get back all of her money. 

  

 Jill now has a  lump  some of $40,000  that  she  can  spend 

or  invest any way  she  likes.   You have a note  that you must work to bring current and make it a paying note again. 

  

 But what happens  if Steve does not have the cash to buy 

the mortgage.    Easy.    You  can  bring  the  note  to  our  firm (Heartview  Financial).    We will  buy  the  note  and  pay  you  a finder’s fee.  Let me show you how this works. 

  

 Assume we have  the exact same scenario as above.   You 

find the note, contact Jill and find out that she is willing to sell the mortgage.    You  get  some  basic  information  about  the mortgage  such  as  the  amount,  interest  rate,  payment schedule,  information  on  Jack,  and  information  about  the property  such  as  type of  house, number of beds  and  baths, etc.   Steve then contacts Heartview Financial and gives us the information.    Steve  asks  for  a  quote  on what we would  be willing to pay for this non‐paying mortgage.   If Steve (you the student)  knew we would offer $40,000  for  the note he now has a deal  in hand.   Steve calls  Jill up on the phone and says “Jill  I went over  the numbers with my partner  and  the  best we  can do  is $35,000”.   Once  Jill  accepts  the  $35,000  Steve calls Heartview  back  up  and we  proceed  to  closing.    At  the closing table Heartview will cut two checks.  One to Jill for the $35,000  and one  check  to  Steve  for  $5,000.   The  $5,000  is 

  

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 pure profit  for Steve without having  to buy  the mortgage or deal with  Jack  in any way.   Steve walks away with five grand and goes on to the next deal.  Imagine doing just two of these deals  a month.    That makes  an  extra  $10,000  in  you  bank account   for   doing   some   simple   research   or   just   simply running an ad.  Wow. 

  

 Now,  you might  be  asking  yourself why  in  the  heck 

would  Jill  sell  here mortgage  at  such  a  huge  discount.    The answer  lies  in  the  marketplaces  perceptions  of  defaulted paper. 

  

 The  beginning  investor  as  well  as  a  sophisticated 

investor believes that defaulted paper is nothing but a basket full  of  problems without  any  real  upside  potential.    I  know otherwise and so will you by the time you finish this book. 

 

You might also ask yourself why would Heartview buy this defaulted  paper.      You  make  money  right  away  when  we purchase  the mortgage.  We make money as we  rehabilitate the paper. 

  

 Fortunately  for you and me  this works  to our advantage 

for many reasons as outlined below.   

 Specifically  the  marketplace  considers  defaulted  paper 

like the following:    

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 1.    Nothing but problems 

 

2.    Costs, time and hassle of foreclosure  

3.    Potentially low loan‐to‐value ratios  

4.    Property   in  need  of   lots  of   repair   and  deferred maintenance 

 

5.    Hassle of keeping up with all of the paperwork   

 The above list is an accurate list of what could be involved 

with  investing  in  defaulted  paper.    Since  defaulted  paper  is viewed  as  a  hassle  there  is  not  much  of  a  market  where investors are willing to purchase the paper.  Jill does not have anyone else  to  sell her mortgage  to.    She  is not  getting any payments and she needs cash now.   To foreclose, even  if she knew how, could cost her thousands of dollars.  At  least that is the answer the attorneys might tell her. 

  

 While  this  is  a  typical  deal  where  you  could  bring  the 

defaulted paper  to Heartview  Financial, we are not  the only company  in  town  that will buy  this paper.   There are others, not a lot, but enough for you to be able to take your paper to other  individuals or companies and sell the mortgage and get a fee. 

   

If   you   have   the   funds   to   invest   and   purchase   the 

mortgage you are now  in the drivers seat and stand to make    

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 a tremendous profit.   Lets see how you can profit no matter 

what you do.                                             

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CHAPTER SIX  

       

WHO’D BE DUMB ENOUGH TO BUY THIS

      

The  title of  this  chapter  is a  little misleading.   You now 

have the knowledge necessary to profit in an area that others 

know  nothing  about.      Since  other  investors  don’t  know 

anything  about  defaulted mortgages  they  assume  that  they 

are worthless.    You notice  I used  the word assume.    Please 

pardon  my  language  here  but  when  someone  assumes 

something  it  generally makes  an  “ass”  out of  “u”  and  “me” 

(ass‐u‐me).    This  assumption  and  ignorance  on  the  part  of 

other  investors  gives  you  and me  a wide‐open  playing  field 

where we  can  take  the best deals and make  the most profit 

without having to compete with anyone else.   

 Everything sounds great so lets go ahead and buy a note 

(mortgage).   When  you  buy  the  note  here  is what  you  do. 

You  contact a  title  company  to handle all of  the paperwork 

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 for you.  Don’t try to save a little money and do this yourself. 

You are only asking for trouble if you make a mistake.  This is 

what I call:  

   

“jumping over dollars to save a few pennies.”  

   

Let the title company verify that the title to the property 

is  correct  and  that  the mortgage  is  valid.   You  now  have  a 

note that is secured by real estate.  You have a built in equity 

cushion   (the   difference   between   what   is   owed   on   the 

property  versus  what  the  property  is  worth)  because  you 

bought  the mortgage at a  large discount.   Keep  in mind  that 

the note  (or mortgage or deed of  trust)  that you bought  is a 

defaulted  note,  meaning  it  is  not  receiving  any  payments. 

Once you have the note you can do several things. 

 Foreclosure is the obvious answer but is it the best

solution? Probably not.

 Let’s take a look at the problem. 

   

In  the  event  that  the  homeowner  for  any  reason was unable  to  pay  back  the money,  he  or  she  (after missing  a payment or two) would be notified by warning letters or past‐ due  notices.  This  is only  a past‐due  notice  and  not  a  notice that  foreclosure  is  in  progress.  The  content  of  the   letter would  vary  from  one  lender  to  the  next  but  they  are  all 

  

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 designed  to  sound  as  if  the  homeowner  is  on  the  verge  of losing  their  home  if  payment  is  not  sent  immediately.  The homeowner  is  instructed  to  send  in  their  full  delinquency (past due amount) plus a  late  fee, which usually amounts  to an additional  four to  five percent of the monthly payment.  If they do not send in their payment the  lender has the right to seize the house and sell it at auction to recover its money. 

   

Most  mortgage  contracts  allow  foreclosure  to  begin when  a default  exists  even when  the payment  is  as  little  as two  weeks  late.  Lenders  generally  do  not  initiate  the foreclosure process so early  in the default. They want to give the  homeowner  the  benefit  of  the  doubt  so  that  the homeowner has the chance to bring their payments current. 

   

Mindset Of The Homeowner  

 Let me  set  the  stage  for  what  we  are  going  to  talk 

about with  foreclosures.   To do  that we need  to understand the  mindset  of  the  homeowner.    What  are  they  thinking, what  are  they  feeling  and  how  they  react  to  the  stress  of foreclosure. 

   

When a person is in foreclosure they are under a lot of stress and possibly very  scared. They are not sure what  they should  do  to  handle  the  problem.      When  someone  stops paying  on  their mortgage  they  have  already  stopped paying on all of  their other debts.   These other debts  include, credit cards  and personal  loans.   The mortgage  payment  is  always the last thing to stop being paid. 

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 Some  people when  faced with  foreclosure  try  to  look 

at every possible scenario and by doing so they are faced with a situation called “paralysis by analysis”.    What this means is that that homeowner gets so caught up in looking at all of the details  they  never  end  up doing  anything  at  all.   Next  thing the homeowner knows  is that the house has been sold to an investor and they have to move. 

   

Other people  in  foreclosure will  get  confused because they  do  not  understand  the  legal  process.    This  confusion actually  causes  some  of  them  not  to  do  anything,  simply because    they    do    not    understand    the    process.          The homeowner  actually  freezes  and  does  nothing.      This  is  a terrible  waste.    The  homeowner  is  controlled  by  fear  and loses  their  house when  there was  a  chance  the  house  and their credit rating could have been saved. 

   

How You Can Help    

You  have  the  unique  opportunity  to  help  the homeowner  avoid  foreclosure  and  solve  their  problem.    In the    process    you   make    a    substantial    return    on    your investment.   Depending on how you structure your deals you can easily double your money every year or less. 

   

You  might  ask  yourself  why  do  people  get  into  this situation  in  the  first place.   For  some people  life  just gets  in the  way.      Sometimes  bad  things  happen  to  good  people through no fault of their own.  For others it is a medical issue. 

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 Others  lose  their  job  and  remain  unemployed  for  a  long period  of  time.    Since  they  are  unemployed  they  have  no income and quickly burn through all of their savings. 

   

History  has  shown  that  the most  common  reason  for foreclosure  is divorce.   When a couple gets divorced they are both still obligated to pay the mortgage but neither wants to be  responsible.      Both  parties  start  to  dig  in  their  heels expecting (even demanding) that the other party will pay the bills.      Well  neither  one  pays  and  the  mortgage  goes  into default.     When  the mortgage  is  not  paid  the  creditor will eventually  foreclose.   In  this  scenario  both  the husband  and the wife  lose  not only  their  house,  but  also  any  equity  that may  have  been  built  up  over  the  time  they  owned  the property. 

   

Let’s go back  to our original home  seller  (Jill)  and our original  homebuyer  (Jack).    Jill  has  a  house  that  is  worth $100,000.   Jack has $30,000  that he can put down right now to buy the house  from  Jill.   Jack asks  Jill  if she will act as  the bank  for  Jack.   What  this means  is  that  Jill will be using  the equity in her house as a loan to Jack. 

   

($100,000 ‐ $30,000 = $70,000 equity)    

Jack  will  make  a  regular monthly  payment  just  like  he would  do  to  a  bank  if  he  got  a  typical  loan  from  the  bank. Only he makes his payment directly  to  Jill,  instead of a bank. Jack puts $30,000 down and buys the house.   Jack now has a 

  

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 $70,000   first  mortgage   (first   loan)  on  the  house  at  10% amortized over 30 years.   His monthly mortgage payment  is $530.     A   first   loan   is  what  most  people   think  of  when someone  says mortgage.    Jill  likes  this  idea  because  she  is able   to   get   her   monthly   payment,   which   is   the   most important thing to her, and she avoids having to pay taxes on the entire sale amount of her house.  If Jack went to the bank and  borrowed  the  money  to  buy  Jill’s  house  he  would  be required  to make his monthly mortgage payment directly  to the bank.  But lets go back to dealing with Jill and Jack. 

   

Jack’s life is going along great until one day Jack gets laid off from his job. He is now out of work and must rely on his savings to cover all of his expenses including paying the mortgage on the house.

 If  Jack  does  not  pay  as  he  agreed,  Jill  could  eventually 

foreclose on the house as a way to get back the money the Jill 

loaned to Jack (by way of the mortgage she owns).  This goes 

back to my first question: “is foreclosure the best option?”  

   

Before Jill forecloses she should contact Jack to try to get 

him  to  pay.    Unlike  with  banks   (which  typically  have  no 

human  involvement)  Jill  could work one‐on‐one with  Jack  to 

help  him  get  back  on  his  feet  and  start  making  payments 

again.    Jill,  not  being  a  real  bank,  does  not  really want  to 

foreclose.   She would however  like most of her money back 

from  the mortgage.   I have  found  it  is always easier to deal 

with an individual to get the very best discount when buying  

 

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 a defaulted mortgage.   An  individual has a greater  incentive 

to work with us to get some money from the mortgage.  

   

Remember,  most  people  have  no  idea  that  they  could even  sell  their mortgage much  less  sell  a mortgage  where someone  is  not making  their  payments.    Jill,  in most  cases, assumes  her mortgage  is worthless  or  at  the  very  least  not worth what is actually owed on the mortgage. 

  

 So let’s get back to our example.   Jill is afraid to foreclose 

on the note (mortgage) because of several possible reasons:  

6.    Does not want to foreclose  

7.    Does not know how to do it  

8.    Afraid it costs to much  

9.    Does not have the money to foreclose  

10.  Just wants out       

Steve  (You)  Has  The  Cash  To  Buy  The Note 

      

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 So,  now  we  have  an  affiliate  Steve  (that’s  you)  who 

contacts  Jill  and  offers  her  $40,000  for  the  note.    Keep  in mind that the normal range for buying defaulted mortgages is around 20 cents to 50 cents on the dollar.  You will take over everything.    She  no  longer  has  to  deal with  Jack  or  worry whether  or  not  she  will  get  her  much  needed  monthly payments.   She does not have  to worry about how  to  come up with the money to foreclose if it is required.  She does not have  to worry  about working with  lawyers or understanding the  legal system.   She does not have  to wait 30 years  to get back all of her money. 

  

 Jill now has a  lump  some of $40,000  that  she  can  spend 

or  invest any way  she  likes.   You have a note  that you must work to bring current and make it a paying note again. 

  

 Steve’s  first  thought might  be  that  he will  foreclose  as 

soon  as  he  gets  all  of  the  paperwork  completed  for  the 

transfer of ownership of  the mortgage  from  Jill  to Steve. But 

before  he  forecloses  he  decides  to  review  some  of  his 

alternatives.  

   

Alternatives to Foreclosure  

There are a number of alternatives to foreclosure, which should be considered. The alternatives are particularly worth

    

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 considering because it could result in a quick return of your funds if done correctly.

 Remember, most people in foreclosure feel trapped

within the walls of their property and don't know what to do or whom to turn to. How could all of this have happened to Jack? Jack feels like he is stuck because now he is behind on his payments. An avalanche affect takes place and the bills pile up and Jack knows he might lose his house.

 Option #1:

 

 An easy answer to avoid foreclosure is for Jack to sell the

property. Steve (you as the new note owner) can make a visit to Jack’s house. On his visit, Steve may take two people with him; his attorney and his real estate agent. Steve knocks on the door and introduces himself as the new owner of the note when Jack answers the door. Steve also needs to explain that Steve’s attorney is there to explain the foreclosure process to Jack so he understands what is about to happen. Steve also introduces his real estate agent and how Jack can avoid foreclosure if he will list the property for sale with the agent. Jack, the real estate agent and Steve all benefit. Here’s how.

 Jack’s Benefits

 

 1. By listing the property for sale with an agent Steve

will hold off on the foreclosure. 2. Jack saves his credit rating by not having a

foreclosure listed on his credit report. This is a very bad mark on a persons credit report. Having a

 

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 foreclosure on the credit report can make it very difficult to obtain financing or rent anything in the future.

3. Jack does not lose the equity that is in the house. He can sell the property at full value. Jack still has to pay off the mortgage and any lat payments and legal fees.

4. Jack now has cash to move somewhere else so that he can start over. Jack can use the profit (sales price minus the debt on the property including late payments and legal fees) to start over.

 Real Estate Agent Benefits

 

 1. The agent gets a property listing that they would

otherwise not have known anything about. 2. The real estate agent gets a commission for selling the

property.

 Steve’s (You) Benefits

 

 1. Steve benefits because he does not have to foreclose.

He allows Jack to sell his house and avoid the foreclosure showing up on Jacks credit report.

2. The note pays off at full value ($70,000). Steve gets the full amount owing on the note when the house sells to a new buyer who will generally obtain a bank loan to buy the property.

3. Steve gets all of the past due payments. If Jack is 10 months late by the time the property goes to closing

 

   

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 (the new buyer completes the purchase) the total overdue payments equals $5,300.

4. Steve gets all of the late fees that are due. Since most mortgages typically have a 5% late fee on missed mortgage payments each missed payment has a late fee of $26.50. After 10 months Jack also owes $265 in late fees.

5. Steve gets his money ($40,000 is what he paid) right away without having to do anything to get the money back.

6. Steve makes a quick $30,000 profit ($70,000 owed - $40,000 purchase price) in a short period of time.

   

 Total profit to Steve from this deal is $35,565 ($30,00 note payoff + $5,300 in overdue payments + $265 in late fees). That’s almost a 100% rate of return on Steve’s investment in less than a year. That sure beats every other investment out there today.

    

Option #2  

 Reinstatement. The mortgagor (person making the

payments-this is Jack) may attempt to avoid foreclosure by paying the back payments plus late fees. If the Mortgagee (person receiving the payments-this is Steve) is willing to accept the payments, the foreclosing attorney will verify the

    

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 amount required to reinstate with the Mortgagee and demand a certified check, cashier¹s check or money order.

 Most conventional mortgage forms give the mortgagor the

right to reinstate, and most FHA and VA forms do not provide for reinstatement once the Mortgagee has accelerated the debt. On FHA and VA mortgages, the Mortgagee may allow reinstatement and the attorney should include all expenses, attorney fees and costs, and charges incurred by the Mortgagee.

 Let’s go through the same example as Option #1. Jack

finds a way to borrow money from friends and family and decides to bring the mortgage current. This can be several thousand dollars depending on how many months the mortgage is delinquent. If Jack reinstates (brings the it current) the mortgage what happens to Steve?

 Steve benefits because he does not have to foreclose on

the property. Steve now receives a monthly payment of $530 each month on the note. Remember Steve bought a mortgage of $70,000. Even though Steve only paid $40,000 for the mortgage he is still entitled to the full monthly payment on the $70,000.

 

 Steve receives all of the back payments, late fees and legal

fees that were owed when the mortgage became delinquent. This can amount to several thousand dollars depending on how many months the mortgage is behind. Let’s say that Jack is behind a total of 10 months by the time Jack decides to bring everything current. If the monthly payment were $530

 

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 per month he would owe $5,300 in back payments. Late fees are typically 5% of the payment amount or $26.50. For 10 months this equals another $265. Legal fees Steve may have incurred might be $1,000. Total due and owing to bring Jack’s mortgage current is $6,565.

 Let’s take this one step further and say that Steve borrows

the $40,000 to buy the $70,000 defaulted mortgage. If Steve went to a bank or borrowed money from a friends IRA (See chapter on tax-free investing) at 10% per year for a period of 10 years Steve would have a monthly payment of approximately $303. Now, here is where it starts to get really good. Steve used other people’s money (OPM) to buy the defaulted mortgage. His cost is $303 per month. By working with Jack he gets Jack to bring the mortgage current and Steve receives an immediate lump sum of cash in the amount of $6,565. Steve also receives a monthly payment of $530 from Jack. Keep in mind Steve is paying $303 to his friends IRA, but he is receiving $530. This means he has a positive monthly cash flow of $227 ($530 - $303 = $227). On an annual basis this equals $2,724 per year.

 So let me see if I have explained this correctly. Steve had

no money out of his own pocket to buy the mortgage. He got $6,565 now plus $227 a month until the mortgage is paid off. Keeping in mind that people will typically sell or refinance their house every 5 – 7 years, Steve should receive the whole balance of $70,000 paid off in 5 – 7 years. If Jack took 5 years to pay off, Steve would have a positive cash flow of $227 for 60 months (5 years). Total positive cash flow equals $13,620. This is a fantastic deal! Assuming at the end of five

  

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 years Jack would still have a balance of $70,000 for the mortgage, Steve would be paid $70,000 to pay it off in full. Subtracting what Steve paid for the mortgage ($40,000) Steve has a profit of $30,000 plus the monthly positive cash flow of $13,620 plus the late payments of $6,565 for a grand total $49,825. How many of these do you need each month to make you happy?

 Option #3

 

 Deed in Lieu of foreclosure. A Deed In Lieu of

Foreclosure is a fantastic opportunity. If Jack knows he cannot make the monthly payments he must find another solution. He knows foreclosure of the house is just a matter of time. Jack, in an effort to preserve his credit rating and any additional fees and expenses decides he just wants out of the house anyway he can. Jack (homeowner) signs a Deed In Lieu of Foreclosure to Steve (Steve bought the defaulted note at a tremendous discount). A Deed In Lieu of Foreclosure is nothing more than Jack signing the Deed to his house over to Steve. By signing over the Deed Jack avoids foreclosure of the house. This is how the phrase Deed In Lieu of Foreclosure comes about. Jack also avoids any future liability associated with the mortgage.

 Should Steve take the Deed In Lieu of Foreclosure or

should Steve foreclose on the house? I will give you the lawyer answer; it depends. It depends on what a title search of the property reveals. A title search is where a title company (the company that handles all of the closing documents when someone buys or sells a house) goes to the courthouse and

  

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 looks to see what debts are attached to Jack’s house. The mortgage that Steve bought will show up, but there might be other debts on the property including judgments liens (result of lawsuit in court) and tax liens (result of unpaid property taxes). If there are any other debts attached to the property Steve may not accept a Deed In Lieu of Foreclosure. What helps Steve make this decision is the amount of equity in the property. You will remember that the equity is determined by subtracting what is owed on the property from what the property is worth (Fair Market Value or FMV). In this case we have a house worth $100,000. Debt on the property is $70,000. Therefore the equity is $30,000. We also have something called the loan to value ration or LTV. The LTV is calculated by dividing the FMV by the debt on the property.

 $100,000 / $70,000 = 70% LTV

 

 The LTV is important because as a general rule of thumb

you do not want to buy a note where your investment (the amount you pay for the note) exceeds 70% LTV. By keeping this one rule in mind you should have a very profitable defaulted paper business.

 If Steve accepts the Deed In Lieu he will also be accepting

any other debts that are attached to the property. So lets say there is a $10,000 judgment lien attached to Jack’s house. What happens?

 If Steve accepts a Deed In Lieu of Foreclosure from Jack,

Steve will now own the house. Steve can now sell the property at full value. If Jack’s house is worth $100,000 and

 

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 there is a $70,000 first mortgage (this is the note that Steve bought from Jill) there is $30,000 worth of equity in the property. However, if Jack was 10 months behind (using the same example from Option #2 above) he has $6,565 in additional debt (every time Jack misses a payment, the principal balance of the mortgage increase) that is owed on the property for a total of $76,565. That means instead of $30,000 worth of equity there is only $23,435. Any additional profit Steve might get from the sale of the house is starting to decrease. Now let’s add on the $10,000 judgment lien. If the debt (including back payments) is $76,565 we need to add the $10,000 judgment lien for a total of $86,565. The judgment lien must be paid off before Steve can give clear title (ownership) to the new buyer of the property. So now the amount of equity that remains is only $13,435.

 When Steve sells the house (assuming he sells it a full

value of $100,000) the additional profit over the debt that Steve is owed is $13,435. So what are the benefits to Steve and what did Steve make total on this deal?

 1. Steve did not have to go through the time and expense

of foreclosure. 2. Steve paid $40,000 for the mortgage but received

$76,565 as payoff on the mortgage when the property was sold. His profit was $36,565

3. Steve must pay off the judgment lien on the property, but any money left over goes into Steve’s pocket. This amount is $13,435.

4. Total profit to Steve is $50,000 ($36,565 + $13,435) profit from and initial investment of $40,000. Steve

  

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 made a little over 100% profit on this deal in a matter of months.

 Now let’s take a look at the numbers if there are no other

debts attached to Jack’s house. If Steve accepts a Deed In Lieu of Foreclosure from Jack, Steve will now own the house just as was described in the example above. Steve can now sell the property at full value. If Jack’s house is worth $100,000 and there is a $70,000 first mortgage there is $30,000 worth of equity in the property. However, if Jack was 10 months behind (using the same example from Option #2 above) he has $6,565 in additional debt that is owed on the property for a total of $76,565. That means instead of $30,000 worth of equity there is only $23,435. You need to always keep in mind the back payments that are owed on a property. Any back payments affect you overall yield (rate of return on your investment, i.e. your profit).

 When Steve sells the house (assuming he sells it a full

value of $100,000) the additional profit over the debt that Steve is owed is $23,435. So what are the benefits to Steve and what did Steve make total on this deal?

 1. Steve did not have to go through the time and expense

of foreclosure. 2. Steve paid $40,000 for the mortgage but received

$76,565 as payoff on the mortgage when the property was sold. His profit was $36,565

3. Steve does not have any additional debts attached to the property that must be paid off. Additional money out of pocket = $0

  

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 4. Steve sells the property for $100,000. Steve is entitled

to keep all of the sales proceeds. He paid off the existing mortgage (which he owns), which means he has an additional profit of $23,435.

5. Total profit to Steve is $60,000 ($36,565 + $23,435) profit from and initial investment of $40,000. Steve made a 150% profit on this deal in a matter of months.

 Which was the better deal. The better deal is when Steve

takes a Deed In Lieu of Foreclosure when the property has no additional debts. He has a higher profit margin (additional $10,000 in profit). Is it worthwhile for Steve to take a Deed In Lieu of Foreclosure even with other debts on the property? Yes! Steve gets title to the property without having to go through the foreclosure process. He can turn around and sell the house quickly and get the defaulted mortgage he purchased paid off in full. With a Deed In Lieu Steve is able to get the property for what he paid for the mortgage ($40,000). Steve can now sell the property at retail and keep the difference between what is owed and the sale price of the property. More Deed In Lieu of Foreclosure a little later in this chapter.

    

Option #4  

 New Loan. Steve can refer Jack to a mortgage broker

who will help Jack refinance the property to pay off the existing mortgage plus back payments. The new loan will pay off the existing mortgage plus any past due amounts. Jack (homeowner) now makes payments to the bank. Through the

 

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 refinance the mortgage would be paid in full plus any overdue amount.

 Did you know that you can pull Jack’s (homeowner)

credit report without Jack’s permission in an effort to determine weather or not you want to even buy this particular note. This right is provided under what is called the Fair Credit Reporting Act (FCRA). Under the FCRA, subsection 604 here are the permissible reasons for containing a consumers (Jack) credit report.

 1. In response to a court order (judgment award is an

example) 2. The consumer gave written permission to pull the

report. 3. A business transaction that involves a consumer.

Purchasing a mortgage qualifies. You pull the credit report to establish to likelihood of being paid on the mortgage. Since we now we are buying a mortgage that is in default we are not as concerned about the homeowner’s (Jack’s) credit.

4. For employment purposes 5. For insurance underwriting

 

 If Jack is going to attempt a new loan the will

probably pull his credit report to determine the likelihood that Jack will be able to make the monthly payment. Many mortgage companies will overlook bad credit if Jack meets one important requirement. That requirement is equity in the property. Since we are only purchasing mortgages that do not exceed 70% LTV (loan to value) there is still 30% equity left

  

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 in the property to protect the loan in the event of default. On a $100,000 house the total debt on the property that Steve might be interested in does not exceed $70,000 (including late payments and legal fees). When Jack goes to borrow let’s say $80,000 that would leave the bank with 20% ($100,000 - $80,000 = $20,000 or 20% LTV) equity in the property for protection. The new $80,000 loan allows Jack to payoff the $70,000 note he owes to Steve, plus any late payments and legal fees. Steve gets all of his money and Jack stay in his house and does not lose the remaining $20,000 in equity on the property.

 Let me just summarize the benefits in this scenario.

Using the same example in Option #2 and Option #3, what are the benefits?

 Jack’s Benefits

 

 1. Jack saves his credit rating by not having a foreclosure

listed on his credit report. 2. Jack does not lose the equity that is in the house

($20,000 remains after the refinance) 3. Jack does not have to move. 4. Jack still has close to $4,000 that can go towards

home improvements or to pay off other debts.

 Mortgage Broker Benefits

 1. The broker gets to refinance a property he would

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 2. The real estate agent gets a commission for selling the

property.

 Steve’s Benefits

 

 1. Steve would receive $76,565 from the refinancing of

the house. 2. Steve does not have to foreclose on the house. 3. Steve makes a profit of $36,565 within a couple of

months when the new mortgage (from the bank) pays off his mortgage.

 Option #5

 

 Steve could offer Jack a Forbearance Agreement. A forbearance agreement is where Steve agrees to not foreclose if Jack will work with Steve to bring the mortgage current over time (typically 12 months). Here is how it usually works. Steve contacts Jack about bringing the mortgage payments current to avoid foreclosure. Jack wants to bring everything current but because he lost his job he does not have enough money to bring it current. Fortunately Jack has a new job and can make his regular monthly payment. Using the same example as covered above, Jack is 10 months behind in his payments. He owes a total of $6,565 in back payments. Jack does not have the $6.565, but he does have $3,000. Should Steve take the $3,000 or should Steve foreclose?

 If I were Steve I would take the money? Why? Jack

now has the ability to make his regular monthly payment of $530. So Steve would now start to receive a positive monthly

 

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 cash flow of $227 (see Option #2). Steve would take the $3,000 now. Jack still has an overdue balance of $3,565. Most forbearance agreements have a maximum time limit of 12 months to bring the overdue payments current. If Jack still owes $3,565 (back payments), to pay the over due amount off in 12 months we divide the $3,565 by 12. This equals a monthly payment of $297.08. Jack must now make his regular monthly payment of $530 + $297.08 (monthly payment to bring the overdue amount current) which equals a total monthly payment of $827.08.

 Could this be difficult for Jack? Yes it could, but if

Jack really wants to save his house and his credit rating he will find a way to make it happen. Steve is giving Jack a great deal by holding off on the foreclosure with the understanding that Jack will make the full $827.08 payment each month. If Jack misses a payment, Steve can immediately foreclose as the forbearance agreement between Jack and Steve is now null- and-void (canceled because jack missed a payment).

 Overall, Steve gets all of the $6,565 in past due

payments that were owed, plus $227 each month over the next year until the note in brought current. At the end of the year Steve has in his pocket $9,289 ($6,565 +($227 x 12)) in pure cash profit.

 In my mind this a great way to do business because

everyone wins. Jack wins because he is able to keep his house, avoid foreclosure, save his equity and maintain a good credit rating. Steve wins because he received $9,289 at the end of one year plus $227 a month in positive cash flow until

  

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 the note is either paid off or refinanced. When the note is paid off Steve receives a lump sum of $70,000. He now gets an additional $30,000 in profit.

 All of the above examples should be reviewed

with your attorney to ensure that you have not violated any laws or regulations in your area.

 

What If Steve Does Not Have the Cash?     

But what happens  if Steve does not have the cash to buy the mortgage.    Easy.    You  can  bring  the  note  to  our  firm (Heartview  Financial).    We will  buy  the  note  and  pay  you  a finder’s fee.  Let me show you how this works. 

  

 Assume we have  the exact same scenario as above.   You 

find the note, contact Jill and find out that she is willing to sell the mortgage.    You  get  some  basic  information  about  the mortgage  such  as  the  amount,  interest  rate,  payment schedule,  information  on  Jack,  and  information  about  the property  such  as  type of  house, number of beds  and  baths, debt  on  the  property  and  approximate  value  of  the  home, etc.   Steve then contacts Heartview Financial and gives us the information.    Steve  asks  for  a  quote  on what we would  be willing to pay for this non‐paying mortgage.   If Steve (you the student)  knew we would offer $40,000  for  the note he now has a deal  in hand.   Steve calls  Jill up on the phone and says “Jill  I  went  over  the  numbers  with  my  partner  (that’s Heartview)  and  the  best we  can  do  is  $35,000”.   Once  Jill 

  

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 accepts  the  $35,000  Steve  calls  Heartview  back  up  and  we proceed  to  closing.   At  the  closing  table  Heartview will  cut two  checks.   One  to  Jill  for  the  $35,000  and  one  check  to Steve for $5,000.   The $5,000  is pure profit for Steve without having  to  buy  the mortgage  or  deal  with  Jack  in  any  way. Steve walks  away with  five  grand  and  goes  on  to  the  next deal.  Not bad for a few phone calls. 

 

   

Lets look at Steve’s deal a little bit more.  

   

In comes Steve who offers Jill $35,000  for her defaulted 

mortgage. Why would she take it?  

1.    Does not want to foreclose  

2.    Does not know how to do it  

3.    Afraid it costs to much  

4.    Does not have the money to foreclose  

5.    Just wants out  

   

There could be any number of reasons on why Jill would 

take a discount.   I teach my kids all the time “if you don’t ask 

–  you  don’t  get”.    I  think  this  is  a  powerful  trait  everyone 

should  learn.   If you don’t ask  Jill  if  she will  take a discount, 

you can be guaranteed the answer will be no.    If you do ask 

you have a very good chance she will say yes.  

 

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But  let’s  go  back  to why Heartview  Financial would  be 

“dumb” to buy this defaulted mortgage?  

   

1.   We buy the mortgage and pay out $40,0000.  We can 

send a letter to Jack or go visit Jack and discuss some 

of the options listed above.  

   

2.   We could go over to house and talk to Jack.  He can’t 

bring the payments current but he is willing to list the 

property  with  a  real  estate  agent  for  a  quick  sale. 

Everyone wins.  Steve got his $5,000 when we bought 

the defaulted mortgage.  Jack wins because he is able 

to  sell  his  house  on  the  open  market  and  avoid 

foreclosure.   This  also  saves  his  credit  report  rating. 

We  win  because  we  receive  $76,565  (includes  late 

payments discussed  in option 2)  from  the sale of  the 

house.   If we subtract our purchase price of $40,000, 

that   leaves   a   quick   $36,565   profit  within   a   few 

months.   Is $36,565 a good profit  for a  little work?   I 

would  say  so.    Heartview  just  goes  merrily  to  the 

bank to deposit a very nice profit.         

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 3.    If Jack  is not sure what to do or does not want to sell 

the  house we  could  offer  Jack  a way  out  and  avoid 

foreclosure by  allowing  Jack  to do  a Deed  In  Lieu of 

Foreclosure.    I  had  a  deal where  I wanted  to  buy  a 

house and the homeowner was many months behind 

in their mortgage payments.  They did not know what 

their  house  was  worth  nor  did  they  care.      These 

people had  to  leave  town.   The husband  lost his  job 

and  the  family was quickly running out of money.    I 

gave  the  homeowner  $5,000  (for  moving  expense) 

and  they  signed a Deed  In Lieu Of Foreclosure.   The 

$5,000 was a godsend to  the homeowner.  He could 

now move  his  family  and  start  over.   The  benefit  is 

the  homeowner  avoided  foreclosure,  thereby  saving 

their  credit  rating  and  having  the  ability  to  start  a 

new  life.    In essence they  just signed the house over 

to me.   In  Jack’s  case  I  can now  take  the house  and 

sell   it  on  the  open  market.     Let’s  say   I  only  get 

$90,000 instead of $100,000 because of a fast sale.   I 

have  $40,000  invested  to  buy  the  note.    $5,000  in 

moving expenses for Jack.  For a total of $45,000.  We 

sell  the  property  for  $90,000  and  subtract  out  our 

total cost of $45,000, which leaves us with a profit of 

$45,000  net.   We  did  not  have  to  go  to  foreclosure 

and Jack saved his credit rating, plus he got $5,000 to 

start over  somewhere  else.    Lets  assume  this house 

takes 6 months  to  sell.   I walk  away with  a $45,000 

net profit in 6 months.  Did everyone win?  Yes.  Jack 

won because he was able to start over with $5,000 in  

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 his pocket.   Heartview wins when we  sell  the house 

on   the  open  market.     Steve   (you)  win  when  we 

bought the defaulted note and paid Steve $5,000.  

   

4.   Worse comes to worse comes to worse.  Assuming all 

of  the other remedies don’t work  I may have  to  take 

my  legal right  to  foreclose on the property.   Even  if  I 

must  foreclose  I still win.  We could simply  foreclose 

on the mortgage to get paid.  I want to point out that 

I never like to foreclose.  I would always prefer to find 

a way  to  solve  the problem quickly and with as  little 

hassle as possible while giving the debtor as much as 

possible.   So  let’s  say we  go  to  foreclosure. One  of 

Two  things  happens.      My  opening  bid  is  $75,000 

(rounded  off  to  include  principal  balance,  late  fees, 

overdue payments, legal fees, court costs, etc.).       

a.    Someone bids at the auction and bids $1 over 

the minimum bid of $75,000.   I get all of my 

money  and  a  return  of  $30,000  ($75,000  ‐ 

$45,000).    If the bidding goes up to $80,000 I 

still get  the  full $70,000 principal plus $5,000 

in fees for a total of $75,000.  The remaining 

$5,000 goes to Jack as surplus sales proceeds.  

   

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b.   No one shows up and bids on the property.  I 

get   the   house.      The   house   is   valued   at 

$100,000,  but  I  only  paid  a  total  of  $45,000 

($40,000 principal plus $5,000  in  fees).   I can 

now  rent  the  property  for  rental  income.    I 

could sell it at retail.  I could lease option to a 

buyer who will buy  it  in the future. There are 

a  lot of options for what you can do with the 

real estate when you only pay pennies on the 

dollar for a house that is worth $100,000.  

   

5.   You know I have to tell you that when I said the above 

was  the  worst  I  once  had  a  guy  at  a  seminar  who 

asked  me   was   that   really   the   worst   that   could 

happen.   Well,  let’s  say  I  am  driving  home  one  day 

and  I  get  a  phone  call.    On  the  phone  is my  wife 

saying  she  just  got  a  phone  call  from  the  fire 

department who told her the house that we have this 

mortgage against just burned down.   It turns out Jack 

is  angry  and  burns  down  the  house.    Am  I  upset? 

Nope.  On the way home I stop by the store and get a 

bottle of champagne.   I walk  into my house and pop 

the cork.   My wife  is confused because she thinks we 

just  lost  $45,000  (what  I  paid  for  the  defaulted 

mortgage  including  Steve’s  fee of $5,000).   In  fact  I 

just made $75,000.  Here’s the secret.  Whenever you  

  

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 buy  a  mortgage  you  are  placed  on  the   insurance 

policy as an additional  insured.   Since we are  insured 

we  get  a  check   from   the   insurance  company   for 

$75,000   (includes   late   fees)   because   the   house 

burned  down.        Thank  you  very  much  as  I  sip 

champagne with my wife.  

   

No matter what I don’t lose‐I can’t lose if I wanted too.  

   

I want  to  take a  few moments  to  talk about my  favorite 

method.   The Deed  In Lieu of Foreclosure.    Foreclosures are 

unfortunately  commonplace  events  that  all  defaulted 

mortgage  investors  must  consider.      An  alternative  to  a 

foreclosure  is  accepting  a  Deed  in  Lieu  of  Foreclosure.    A 

Deed  in  Lieu may  be  submitted  by  the  borrower  by mutual 

agreement  of  the  borrower  and  lender  or  sometimes  the 

borrower will submit the Deed  in Lieu of  foreclosure without 

even  being  asked  by  the  Mortgagee  (person  receiving  the 

payments).  The ordinary effect of the taking of a Deed in Lieu 

is to extinguish the  lender's deed of trust and vest the  lender 

with title subject to all other existing liens and encumbrances. 

In  effect,  the  lender becomes  the new owner. The  lender  is 

not  required  to  accept  the  Deed  in  Lieu  and  can  show  his 

refusal by  filing a Notice of Non‐Acceptance with  the County 

Recorder.  In any event, a decision is required whether or not 

to accept the Deed in Lieu of foreclosure.  I must caution you 

that  proper   consideration   should   given   for   the  property  

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 received   under   the  Deed   in   Lieu.   It   is   possible   for   the 

borrower to come back and reclaim the property accusing the 

lender of taking unfair advantage.   Special wording should be 

added  to  the  Deed  in  Lieu  to  document  the  understanding 

between  the  borrower  and  lender.  The  settlement  attorney 

can  handle  this  when  I  close  (accept)  the  Deed  In  Lieu  of 

Foreclosure. 

 Before accepting the Deed, an examination of a

Preliminary Title Report should be made to determine the existence of other liens previously known or not. As mentioned earlier, these liens remain after the Deed is transferred. This is generally different from a foreclosure in which the liens junior to the foreclosing deed holder can be wiped out if the foreclosure sale comes up short. Accepting the Deed in Lieu may leave me (the Trust Deed investor) with

substantially less if the existing junior liens eat up a substantial part of the property's equity (see Option #3). Legal experts generally advise the issuance of a new owner's title policy insuring that the lender will be acquiring marketable title. I would always do this even if the attorneys did not recommend it. I would rather

be safe than sorry.  

 The safest route is to have the transaction handled by an

escrow company with new title insurance. If the transaction was handled informally outside an escrow, it would leave him

 

 

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 vulnerable to liens filed just before the filing of the Deed in Lieu of Foreclosure.

   

 Bottom Line? Use and attorney and Title Company for

everything. Get title insurance to protect you and make sure to look at all of the documents.

     

When The Senior Lien Goes To Foreclosure

 

 As a defaulted mortgage investor, you not only have to

take steps to avoid a foreclosure situation on your own note, but, with the existence of senior debt, you must be aware of the ramifications of any trouble that may befall the senior lien. With a senior lien foreclosure, the junior lien faces options that may be less than desirable. But, wait a minute. You might say what the heck are a senior lien and a junior lien. Let’s say that you decided to buy a defaulted note that was in junior position. Junior position just means that there was something else (mortgage, judgment, tax lien) filed at the courthouse before the mortgage you purchase was recorded. Let me give you an example. Let’s say there is a property worth $100,000. There is a first mortgage of $40,000

recorded at the courthouse on April 1st, 2000 and a 2nd

mortgage of $20,000 recorded April 15, 2000. The position of a debt (junior or senior position) is determined by the date the

  

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 documents were recorded at the courthouse. The earlier recorded document is always in a more senior position.

 Total debt on the property is $60,000 ($40,000 +

$20,000). Jill owns the 2nd mortgage. The first mortgage is owned by Big Bank USA.

 Big Bank USA can foreclose on the property. If at the

foreclosure auction the property only sells for $50,000 what happens. Big Bank USA would receive all of the $40,000 (let’s assume for this example that $40,000 includes late payment and attorney fees) owed on the first mortgage. The remaining $10,000 would be paid to Jill (since she is next in line on the property). But wait a minute, $10,000 does not pay all of what Jill is owed. She’s owed $20,000, right? Right. But there is a problem. When the property sold at auction, the only funds that were left over after paying of the first (the foreclosing lien of $40,000) is $10,000 ($50,000 sale price - $40,000 owed on the first = $10,000 remaining for other lien holders). It does not matter that Jill is owed $20,000. She will only receive $10,000 from the auction. Jill would need to attend the auction and either buy the property herself or ensure that the bidding on the property went up to at least $60,000 (the amount that is owed to the first mortgage and to Jill combined) in order to get all of her money back.

 Let’s look at some of the options that Jill has in her back

pocket that she can use to protect her investment. During the foreclosure/default process, the junior lien holder (Jill) can advance monies to bring the senior lien (Big Bank USA) current. Jill can then tack the advances on to the junior lien

  

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 amount and consequently start the foreclosure process at the junior lien level. Of course this requires the cash needed to make this happen. A more drastic measure is to attend the foreclosure/trustee sale and make sure the bids are high enough to pay the senior liens and the junior liens. Without this help, the bids may only be high enough to satisfy some or all of the senior liens and result in the junior liens being wiped out or paid at less than full value.

 As often is the case, the best results come with some

investigation and preventative measures. When investigating your trust deed investment don't forget to look at the senior debt. Here are some things to look for:

 • Payment Terms: There are  some HUD programs  that 

allow  the  suspension  of  payments  for  a  period  of 

time   if   the   borrower   is  having   difficulty.     These 

unpaid  amounts  are  tacked  onto  the  loan  balance 

thereby  increasing  the  senior  lien  and  reducing  the 

security of the junior  lien(s). There are some negative 

amortization programs that have the same affect. 

• Payment History.  The payment history on  the  senior 

debt  is  some  indication  of  the  credit‐worthiness  of 

the borrower. 

• Due  on  Sale  Clauses.  This  can  be  good  and  or  bad. 

The good: A  sale  can  trigger a  refinancing which can 

mean  an  early  payoff  on  the  junior  trust  deed.  The 

bad: A foreclosure by a Junior Trust Deed may cause 

the due on sale to be invoked on the senior lien.  

   

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 • Prepayment Penalty. This can reduce the chances of a 

refinance and  therefore an early payoff of  the  junior 

lien. 

 Let me go through another example that involves a senior

lien holder and a Deed In Lieu of Foreclosure combined.

 Our Example: Property Value $100,000 Big Bank USA 1st Loan - First Trust Deed - Foreclosing Lender $40,000 Other Liens Junior to Big Bank USA Deed of Trust: $20,000 (that’s you)

 In a Foreclosure Sale with the successful bid being the

Fair Value of $100,000, $40,000 would go to Big Bank USA and $60,000 to the Junior Liens. You would receive all of your $20,000. This still leaves $40,000 left over. Who gets the left over money? Jack. Jack is entitled to any sales proceeds in excess of the debt that is owed on the property. If the total debt owed on the property is $60,000 and the house sells for $100,000 then Jack receives the remaining $40,000 to spend any way he wants.

 If a Deed in Lieu of Foreclosure is accepted by Big Bank

USA, the Junior Liens (you) stay on the property. This in effect leaves Big Bank USA, as the new owners of the property, equity of $40,000 (Value of $100,000 minus the $20,000 in Junior Liens). Big Bank USA must pay you off. You still get all of your money back.

  

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When The Junior Lien Goes To Foreclosure

 

 What happens when the junior lien forecloses? Let’s

create a different example. I will use Jill as the 1st mortgage ($50,000) note holder that is in default. Jack is the Homeowner of the property. There is a 2nd mortgage ($30,000) on the property that is in default. Steve contacts Jill about buying the note and negotiates a purchase price of $25,000. Jill did not want to foreclose on Jack for some of the reasons listed earlier. While Steve is completing the purchase of Jill’s’ defaulted mortgage Steve receives notification from

an attorney telling Steve that the 2nd mortgage holder is foreclosing. Should Steve cancel his purchase of the defaulted mortgage? No. Actually, just the opposite. Steve should speed up (if possible) the purchase of Jill’s defaulted

mortgage. Why? When the 2nd mortgage forecloses it is

required to pay off, in full (including late payments), the 1st

mortgage (Steve’s). This means that Steve will receive the full $50,000 plus late payments even though he only paid $25,000. Steve is able to make a $25,000 profit and he does not have to do any work to get his money back and his profit. I actually like it when a junior lien (to mine) forecloses because I know I will always be paid from the sales proceeds.

 

What to Buy I know I have a lot of information in this chapter. We

talked about both 1st and 2nd mortgages and how you could buy them. Does this mean you can buy defaulted mortgages that are in 2nd position? The answer is yes. Just be careful to

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 make sure the total debt on the property including all late fees does not exceed 70% Loan To Value. You must take into account any overdue payments. Remember each late payment reduces the equity available in the property to pay off your defaulted mortgage.

If you plan on finding deals that you can give to Heartview for us to buy here is what we want you to look for:

• Look for properties where the LTV does not exceed 60% - 70%

• Stay away from 2nd mortgages on the first few deals. You can add 2nd’s later after you get more experience.

• Get the basics on the property and defaulted mortgage to include amount of the note, interest rate, payment schedule (how long), information on Jack, and information about the property such as type of house, number of beds and baths, debt on the property and approximate value of the home, and the LTV.

 We will give you a purchase quote on the mortgage. You

contact Jill and offer her less than what we offered you. I had a student (Janice) who was really exited about a mortgage she was submitting for us to purchase. All the paperwork was in order and we gave her a quote of $40,000 on an $80,000 defaulted first mortgage. She was very excited and contacted the note holder right away and offered her $45,000. The Seller (note holder) accepted the offer. Janice called us back up and said “it worked they agreed to accept $45,000”. I said that’s great Janice, but we only offered you $40,000 for the defaulted mortgage. There was dead silence on the other end

  

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 of the phone line for a couple of seconds. Finally, she said “oh my gosh. I just offered her $45,000 and you are only going to pay $40,000 what do I do”? I said well I guess you will have to come up with the extra $5,000 out of your own pocket. Dead silence on the phone until Janice finally says “but I don’t have $5,000, I was hoping to make $5,000 on this deal with you”. I could tell she was starting to get upset so I said, “Janice, don’t worry. Mistakes happen. Let me tell you what to do”. I told her to contact the seller and tell the seller you made a mistake. Instead of $45,000 you can only offer the seller $38,000.

 Janice  was  reluctant,  but  agreed  to  call  the  seller.      A 

couple of days  latter  I got a call from Janice.   She said, “I got 

them  to accept $38,000”.   I  said  that’s great  Janice, how did 

you do  it.   She  said, “it was easy.   I  just  called up  the  seller 

and said that my financial partner made a mistake and that all 

we could offer the seller was $38,000 and she took the deal”. 

I  started  laughing  and  told  Janice  that was  a  great  idea  of 

using us as the bad guy who made the mistake so that Janice 

still  looks  like  the  good  guy  (person) when  she  talks  to  the 

seller.  This is a clear case of turning lemons into lemonade or 

as  John  D.  Rockefeller  liked  to  say  “I  always  tried  to  turn 

every  disaster  into  an  opportunity.”    I  say  Janice  created  a 

$2,000 opportunity.      

You might be asking yourself “what if the seller won’t take the revised offer”? Well, let’s think this through. I

 

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 understand that the seller is not going to be happy about the mistake, but do you think the seller will walk away from the deal? The answer is no, the seller will not walk away from the deal. If the seller were to walk away what would the seller have? The same thing she had before; a worthless document that is not paying her monthly like it is supposed to. So how much does Janice make on this deal? Janice was hoping for $5,000, but she made a mistake and offered too much. Janice had to go back to the seller and offer less so she decided to give up a little bit of her commission in order to make sure the deal would go through. We bought the defaulted mortgage for $40,000. The seller received $38,000 and Janice got the difference, $2,000, as her fee. This was still a great deal for Janice and she learned a lot and still made $2,000. No bad.

The moral of this story is to make sure you have your numbers correct before you talk to a note seller. Write everything down on apiece of paper before you make any calls. This helps you keep your numbers straight. Follow the process and it will work for you.

 I want to you realize that defaulted paper is like liquid

gold. No matter how you look at it, you still make money. This is why I love this business. If the note is brought current, I win. If I get a Deed In Lieu of Foreclosure, I win. If I foreclose, I win. Because I do this as a business I am able to take advantage of a lot of breaks that are given to businesses. Let’s see how you could do this the way I do…

        

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CHAPTER SEVEN  

        

BE LIKE RICK      

 Picture  a  profitable  business  with  employees  and  nice 

office,  company  car,  paid  vacations  around  the  world, 

respected  in  the  community.    Is  this  you?  Can  you  imagine 

yourself  running  your own  successful business?   If you  can  I 

am  about  to  share  with  you  some  rock  solid  principals  for 

forming   a   business   to   profit   from   the   defaulted   paper 

industry.   If you want to copy what  I have done and create a 

company  that does  the work  for  you  then  you will  love  this 

chapter.    I  am  going  to  show  you  how  to  be  like MikeRick 

(that’s me).   I am going  to start out by covering some of  the 

basics.   I will share with you how  I got started and what  I am 

doing  today.   I am sure you will  find  it as  interesting  to  read 

as I have found it to be when I wrote it.  

   

Going To The Next level  

 

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Whenever  I  do  seminars,  people wanting  to  know  how they can go to the next  level and duplicate what  I have done always approach me.   Some  investors decide  that  they want to take buying defaulted mortgages to a whole new  level and hire employees and create a full‐fledged company. 

  

 I  have  also  found  that  some  investors  are  perfectly 

happy with doing one or  two deals a month, which provides them with  a  very  nice  income.   In  chapter  eight  I will  show you what happens with your  income and how you  can grow your money  very  quickly  so  that  you  can make  as much  as you want without a lot of effort on your part. 

  

 So, how do you create a company  from scratch?   I want 

to be very  clear on what  I am about  to  say.   It  takes careful planning.   But  the  rewards are great.   You no  longer have  to do all of  the work yourself.   The  single biggest mistake  I  see investors make is to get so caught up in the details of forming a company they forget why they are a creating a company  in the first place.  The original goal was to buy paper, but to do it on a larger basis.  Don’t fall into “paralysis by analysis”.  Just get started. 

 Our  economy  is  no  longer  conducive  to  the  huge 

corporate  organization.  That  age  has  passed  its  peak,  and the  American  business  world  is  in  a  phase  of  serious "downsizing."  The  fact  is,  this  process  of  downsizing  has already  thrown  tens  of  thousands  of  former  corporate players   out   of   the   office   high   rise   and   into   smaller 

 

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 businesses.   Many others have decided to  leave the towers of  corporate  America  because  they've  had  enough,  or because  they  see  the  handwriting  on  the  wall.  Many  of these people  are  simply doing on  their own what  they did as  employees,  but  now  they're  doing  it  as  consultants  or private contractors. 

  

 No  one  feels  secure  about  "corporate  security" 

anymore. Corporate  cutbacks and downsizing have  thrown tens  of  thousands  of  top  corporate  players  out  into  the cold. This has made  it more stressful for the managers who remain. They have to do more, faster. 

  

 So  is  starting  a  defaulted  mortgage  business  really 

difficult?  No.  At least not if you follow some basic guidelines and considerations.  You might ask yourself why should I start a business anyway? 

      

Benefits of Having Your Own Business     

When I got started I did not have a clue about what I was doing.  I learned everything by trial and error.  I did not even know if I should start and official company, so I just got started on my own.  I started in a room in my parent’s garage. It did not even have a bathroom.  I had to walk across the 

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 yard and go into my parent’s house to take a shower and brush my teeth.  I was the president, accountant, sale person, marketing person and cleaning crew.  I did everything. Creating a business means you can have other people do these positions for you so that you can focus on the strategic planning or whichever part of the business you like the most. 

  

 Short Commute 

  

 Of  the  many  advantages  of  doing  business  at  home, 

one of  the  biggest  is one of  the most obvious:  it's  a  short 

commute.  

   

In  fact,  the commuting  time  to 

most  home  offices  ‐  unless  the 

home  is  incredibly  large  ‐  is  under 

one minute. You  simply walk down 

or  up  some  stairs,  or  down  a  hall, 

and  voila!  –  you’re  at  the  office. 

There   is  no  hassling  with  getting 

into  cold  cars  on wintry mornings, 

fighting  traffic  as  time  flies  and 

blood  pressure  rises,  finding  (and 

paying  for)  urban  parking  that   is 

getting to be as scarce as  it  is expensive, and negotiating a 

gauntlet of people, elevators, and knots of workers  to get    

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 to  where  the  work  actually  gets  done.  And  there's  no 

reversing the same grueling process to get home.  

   

It  is  not  uncommon  for  a worker  in  the  suburbs  to spend an hour getting from his kitchen table to his office desk each morning.   In Los Angeles and certain other metropolitan areas,  that  figure  can  be more  than  doubled.  Some  people actually spend four to five hours each business day getting to and from work. 

 

   

Commuting  is  not  only  hard  on  your  schedule  and patience;  it's also a killer when  it comes  to auto expenses. When you think of what a car costs to run per mile (cost of car  itself,  insurance,  taxes,  registration,  fuel, maintenance, perhaps  tolls,  etc.),  you  can  get  ulcers  just  watching  the speedometer  turn  over.   Home  office workers  don't  even use  their  cars  to  get  to  and  from work.    This  translates  to significant savings. 

 Loose Dress Codes 

 Typical  dress  standards  for  the  home‐based  office  are 

as  loose  as  last  night's  pajamas.  Because  many  home business operators don't get visits  from customers, clients, or  associates  in  the  course  of  the working  day  ‐  or  do  so only  rarely  ‐  they  can  dress  however  they wish  to  dress  ‐ even naked if that's their inclination. 

     

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 Home  office  attire  is 

clearly more  comfortable  than the  suit‐and‐tie dress  codes of the  corporate  tower  ‐  just another  advantage  of working at home. 

        

Home With The Family   

 There    is    a    trend, 

especially    among    baby boomers  that  are  now  raising their  own  babies,  which  has been  referred  to  as "cocooning."            It  involves staying  home  with  the  family rather  than  rushing  from place to  place  outside  the  home  in hot  pursuit  of  money  and pleasure.    One    of    my important    considerations when  I do business  is how  is  it going to affect my family? 

 YOUR FOUNDATION 

OF SUCCESS 

 

Making yourself a 

successful home 

business owner and 

making a lot of money 

are not necessarily the 

same things.  

   

You can make a 

boatload of money, 

but if you're not a 

"successful person," 

chances are good that 

you'll lose it or misuse 

it.  If you are a 

"successful person,' 

however, you'll have 

the knowledge, skills, 

and discipline to move 

steadily toward the 

goal of financial 

   

It makes  a  decided  difference  to  a  household  to have at  least one of  the parents working at home,  in 

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 contrast  to  having  both.    Home‐based  businesses  fit perfectly  into  the mentality that  finds  its expression  in cocooning  ‐  an  attitude  of  home,  family,  and  quiet togetherness parents away at an office during the day. Even   though   the   "homey"   is  busy   and   involved   in work,  he  or  she  is  still  there  to  handle  emergencies and  crisis  situations.   Just  the presence of  a parent  in the    house    creates    a    feeling    of    supervision    and security. 

 

     

Tax Breaks   

 Having an office in the home is one of the few 

remaining tax breaks available to the taxpayer.      

If you use part of your home regularly and exclusively as an office, many of the expenses may be deductible. However, you can't deduct more than the net amount of income you generate by using the home office.  Just check with your accountant for details on your situation. 

    

 

Considerations When Forming Your  

  

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Business   

 The  first thing you must decide when creating a business 

is what  is  it  the business  is supposed  to do and how will  the business accomplish its tasks. 

  

 When  I was  starting out  in business over 15  years  ago  I 

did not have a clue on what  I was doing or how  I  should go about it.  I just jumped in and hoped for the best.  Well I want to take the time to explain a few things to you so that you will not run into the same roadblocks that I did. 

  

 The first thing that you should do, and thankfully  I did do 

this part,  is  to  set your goals?   This  is often easier  said  than done.   Most  people  look  at  setting  a  goal  as  deciding what you want  (money, time, cars, boats, etc.)  from the effort you put out.   The challenge comes  in making  the goal  specific  so that  you  can  obtain  what  you  want  in  a  reasonable  time period.  So how do you do it?  You create a blueprint for your goals. 

 

             

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Create A Blueprint For Your Goals  

 The car  is packed and you're  ready  to go, your  first ever 

cross‐country  trip.      From  the  White  Mountains  of  New 

Hampshire to the rolling hills of San Francisco, you're going to 

see it all. You put the car in gear and off you go. First stop, the 

Baseball  Hall  of  Fame  in  Cooperstown,  New  York.    A  little 

while  into the trip you need to check the map because you've 

reached an intersection you're not familiar with. You panic for 

a moment  because  you  realize  you've  forgotten  your map. 

But you say  the heck with  it because you know where you're 

going  (most guys always do, or at  least we pretend  to).   You 

take  a  right,  change  the  radio  station  and  keep  on  going. 

Unfortunately, you never reach your destination. 

 Too many of us treat goal setting the same way. We

dream about where we want to go, but we don't have a map to get there. What is a map? In essence, a map is the written word. What is the difference between a dream and a goal? Once again, the written word.

 But we need to do more then simply scribble down some 

ideas on a piece of paper.  Our goals need to be complete and 

focused, much like a road map, and that is why it is important 

to talk about goals.     

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Life consists in what a 

man is thinking of all day. 

‐Ralph Waldo Emerson  

      

Why are goals important? Because without them you don't go anywhere! Whenever you see anything worthwhile being done anywhere, it is because someone is behind it with a passion, a belief and a goal! When it comes to your personal life and your business, goal setting makes the difference between mediocrity and excellence and accomplishment. I often find people talking about setting goals, but are they going through the whole process? Typically, the answer is no. By now you might be asking yourself, what process? Well there is a process that you are encouraged to follow to develop your goals so that you can achieve them. I also encourage you to take a moment and get a pad of paper so that you can take some notes.

 But just how do you set and accomplish goals? Is there

some formula or strategy that can be employed to increase your chances of success? Thankfully, YES.

 The following section is devoted to goal setting. Why?

Easy. If you don’t have a goal, how will you know when you get there?

     

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 In short, what follows is a blueprint for success in goal

setting. The seven steps below are a summary of the steps you need to follow. I will cover each step in depth.

 Step 1. Develop a DESIRE to achieve the goal.

 

 The desire must be intense. How do you intensify desire? Sit down and write out all the benefits and advantages of achieving your goal. Once the list goes between 10 and 20 your goal becomes unstoppable.

 Have  you  set  personal  or  business  goals  and  failed  to 

achieve  them?   I  know  I have and  I  can always point  to  the 

reason why  it  failed.   Here  is  a  crucial question: WHY?   The 

answer  is  simple;  because  I  did  not  have  a  strong  enough 

desire.  Some may  argue with  that.  "But  I  did  have  a  strong 

desire and still  I didn't get  there."   Sorry, but  the desire was 

still not strong enough. This section  is about  INTENSE desire. 

In other words create a PASSION for your goal. 

 How do you identify intense desire, passion?

 

 It's what keeps people working all hours, up early, late to

bed. It's what fueled Stephen Spielberg from the age of 13 to be a movie director. It's what powered Whoopi Goldberg from childhood out of impossible circumstances to be a very successful actress. The desire dominates conversation, thinking, and your actions. How do you intensify desire? This section will show you how.

 

    

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 Question: Where do desires come from? How do they

form?

 Answer: Unlike animals with their internal programming

we call instinct, the human mind has the colossal potential for reasoning, coming to conclusions, thinking things through. So desires start in the mind. Research has shown that impulses are transmitted through electro- chemical processes across the synapses, tiny spaces less than one millionth of an inch across, which separate the brain cells or neurons. Patterns and tracks are formed in our thinking processes. Think the same thought regularly and it becomes habit forming. A deep track like a well-used path across a field. On the other hand, an occasional thought may pass through the mind and be forgotten just like a path seldom used, which becomes overgrown.

 Now apply this information to desires

 

 A desire may come into the mind and soon be forgotten

in the everyday humdrum of life. But keep thinking about it, keep your mind focused on it and what happens?

 The desire becomes strong, very strong. Then? Action

follows right after.

 So back to our original question - how to intensify desire?

    

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 By listing details, particularly benefits! Once the list gets

past 10 or 20 benefits your goal becomes unstoppable. Why not do these exercises today with one of your goals you want to accomplish from reading this book? Have you set a goal for your business to make $2,000 to $10,000 this month? Make a list of all the benefits from using that money. What difference will it make to your family, your lifestyle, your enjoyment of life, and your business growth?

 What if one of your goals is to develop a skill or awaken a

dormant talent or ability? Write down a huge list of the benefits this will bring you and your loved ones, or your business. The more you write, the more details your mind conjures up, the greater the intensity of desire becomes. This is the first step of goal achievement and the foundation. With intense desire fueling your goals you have every chance of rocketing to success!

 Step 2. WRITE your goal down to make it real.

 

 Once it goes into writing it becomes substantial and starts

etching itself into your subconscious.

 This is such an important part of goal setting.  Why  is this 

process  of  writing  things  down  so  important  in  the  goal 

achievement  process?    Also, what  is  the  best way  to write 

down  goals  for maximum  effect?    The  easy  answer  is  that 

writing things down make them real, not just thoughts in your 

head.  Words are an integral part of the thinking process.  We 

can now physically look at it.  Words convey images, pictures, 

feelings, and emotions  to  the mind.   Say  to yourself silently  

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 "POOR" and then follow it quickly with "RICH" and you will be 

aware of the different reactions those words produce in your 

mind. 

 Even the act of using the eye in coordination with the

hand holding the pen makes a much firmer impression on our mind as we write out the phrase or expression.

 Now when we read and re-read that phrase or sentence

the impression on the mind becomes deeper and deeper.

 Here is another important point. When the words are

written and then repeatedly re-written they have maximum impact. Do you remember ever doing something wrong in school and the teacher made you write on the chalkboard (during recess no less) that you will never do “?” again. Why did the teacher make you write it again and again? Because the more you write something down the more you remember it and the more embedded it becomes in your mind.

 Putting it in writing breathes life into your goal, making it

a force, which cannot be easily stopped. To put it simply, "Write Goals Down To Make Them Real.”

    

Step 3. Use DEADLINES As Lifelines!  

 Analyze where you are now in relation to your goal

(where you want to go) and then measure how long you will  

   

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 reasonably need to complete the goal. Then set the latest outside date.

 

 

Karl  Kraus  (1874‐1936),  Austrian  satirist,  once 

gave  this  definition  of  a  journalist:  "A  writer 

whose   skill   is   improved   by  a  deadline:   the 

more time he has, the worse he writes."  

 

I am not trying to pick on journalists. This funny comment does emphasize one thing - a deadline gets results. It creates urgency, it sharpens thinking, and it makes things happen. Creating a deadline for you to achieve certain parts of your goals it critical to your success.

 Lets take a simple example:

 

 Goal 1: I want to submit 5 defaulted mortgage deals!

OR

Goal 2: Six months from today I will be enjoying the referral fees from the money I make flipping a minimum of 5 defaulted mortgage deals.

 

 Which goal is more likely to be achieved? Obviously,

Goal 2 is more likely. Why? Because it is clear, and has a specific time to do it and a specific outcome that is expected.

 However, it would be a mistake to think deadlines

perform miracles. Setting a deadline by saying, "In seven days from now I will have made an extra $5,000" is not going

  

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 to miraculously deliver unless you have a strategy and a realistic plan based on your present circumstances.

 So when creating deadlines for your goals:

 

 1. Break them down into manageable stages. 2. Work out a reasonable time frame for the

accomplishment of that stage and factor in a safety margin for unexpected delays. This prevents disappointment and discouragement through missing the deadline.

3. Put the deadline date for each stage in your computer planner or diary. I used to use a paper planner, but have switched to using a Palm Pilot. I love the ability to have a copy of my desktop computer in my back pocket.

4. Get the deadline date from the last stage. You now have a final deadline for the accomplishment of that goal.

 It now has a high chance of being achieved.

 

 You  have  planned,  set  reasonable  stages,  your  focus  is 

clear.  What’s Next?  Keep the overall deadline in front of you 

daily as you accomplish each stage along the way and START. 

I sometimes  like to write my goals down on a piece of paper 

and  put  my  list  someplace  where  I  know  I  will  look  at  it 

several  times a day.   I have placed my  list on my bathroom 

mirror, on the refrigerator and next to my computer.   I have 

even made bookmarks of my goals.    

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 Step 4. Bypass Resistance and Gather Assistance

 

 1) Bypass the obstacles you will need to overcome, 2) Gather the help you will need to acquire assistance,

e.g. knowledge, training, people, organizations. In each case write them out in a clear list and analyze them.

 If  you  see  roadblocks up ahead on a  journey  you  take  a 

diversion or  try  to  go  around  it.   No  one  in his or  her  right 

mind would  just  drive  on  and  hit  the  obstacle  head  on  just 

hoping they get through! 

 Bypass Resistance

 

 Are there people who don’t or can’t understand your goal

and discourage you? You will always run into someone who says that won’t work or it must be illegal or it may work over there but it won’t work here.

 These people are happy being where they are. You are

reading this book because you want something different. Others will try to pull you down to their level because that is what is comfortable for them. They may not like where they are, but it is familiar and therefore comfortable. For most people it is easier to stay where they are doing the things you have always done than to step out of your comfort zone and do something that is new.

 You have already proven that you are not going to let

others hold you back from accomplishing your goals. You   

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 have to keep reminding yourself of your goals every day, several times a day. After a while you stop hearing the people around you. I don’t mean that you stop associating with them; I mean that you are able to be with them and their actions and comments no longer affect you.

 Gather Assistance

 

 At the same time, it is important to identify the

knowledge you will need to acquire or the people or organizations that could give you essential help. Research the subject and educate yourself. Become knowledgeable on what you are trying to achieve. Perhaps special training is required to excel to the top of your field.

 Do you know people who have accomplished what you

are seeking? Talk to them. Get their input on what you are doing. How did they do it? How did they feel once they reached their goal? Let me make a little suggestion. If you are ever at a seminar and like what the presenter is speaking about then go the extra mile. What I mean is, you have an opportunity right in front of you to gather some firsthand knowledge on a topic that interests you. How do you do it? Ask the speaker to lunch. They are regular people and have to eat too. By taking a speaker to lunch, you now have their undivided attention for about an hour. You cost - $7-$25. How much would it have cost you to get a one-on-one appointment with that person? More than what you paid for lunch, that’s for sure. Don’t jump over dollars to save a few pennies. I see more people make this mistake, yet the

 

   

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 complain they can never get someone to talk to them. Don’t be like everyone else.

 So bypass resistance and gather assistance. Including

these two elements in your goal setting can make the difference between a failed attempt at the target and a bull's eye!

 Step 5. Planning - Looking Ahead To Get Ahead!

   

List all the activities and prioritize them. Rewrite the list, optimize it and perfect it.

 Organizers of a marathon race take time to mark out the 

course.   The   path   is   planned   out   from   start   to   finish. 

Otherwise  reaching  the  finish  line  would  be  a  matter  of 

chance depending on whether a  runner  just happened  to be 

in the area to see it! 

 Achieving your goals requires planning. The time you

take to plan your goals will make the end result a lot more rewarding.

 In Step 3 we saw the need for deadlines and the need to

make another list of manageable slices or segments leading toward the main goal.

 In Step 4 we discussed the importance of bypassing

resistance and gathering assistance. You were encouraged to   

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 make a list of possible obstacles and yet another list of knowledge, people or organizations that could help you.

 Now Step 5 involves using all the information gathered

from these two previous steps. You need to combine all of the previous steps and put them in a logical order. Lay out the manageable steps in order of progression inserting the details from your obstacles list and help list.

 Get a large sketchpad and play around with the order of

things until the plan begins to flow.

 I always like to learn as much about a subject as I can.  So 

acquiring  knowledge  would  come  before  contacting  people 

or  organizations.   Once  you  have  educated  yourself  a  little 

you  can  ask  intelligent  questions  and  get  valuable  answers 

and  leads.   Without  knowledge  you  don't  even  know what 

you need to know to be able to ask the right questions!  Next 

I  like  to  outline what  I  think  I  can  “realistically”  accomplish 

and how  long  it will take.   I find that  I often want to work on 

the easy steps and keep putting off the harder or boring tasks 

until  later.   Somehow,  later never  seems  to arrive.   So make 

your list and stick to it.     

Step 6. Get a clear MENTAL PICTURE of the goal already accomplished.

 Make the mental image crystal clear, vivid in the mind's

eye. Play that picture over and over in your mind.  

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 Imagine the smiling face of someone close to you.

Cashing your first referral check. Having your first defaulted mortgage that you bought at a discount pay off just the way you planned. These sentences immediately bring pictures to your mind.

 The brain often thinks in pictures. The human eye

captures an incredible amount of information with just one glance and relays it all to the brain, which then translates that information into a shape, we 'see'. The brain does not need to receive information through the eyes to see every time. It can recall from memory sights, sounds and feelings and put the whole sequence together and run it like a movie all inside our head.

 Where is all this leading us?

 

 If we could construct our own movie casting ourselves in

the starring role acting out the scene as if we have achieved our goal and play it over and over in our minds what would be the result?

 SENSATIONAL!

 

 A movie is made by a lot of people but a key figure is the

director. His/her job is to visualize the script and guide the production crew and actors. So be your own director.

 Visualize yourself enjoying the benefits of having

reached your goal. This may sound a little 'off the wall' but many find this technique works! I personally love this part. I

 

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 visualize myself with all the money I could ever use, spending all my time with my family. Defaulted paper allows me to achieve this goal.

 So, what do you do? Try this exercise. In your mind

create your own movie theater. Imagine it now. Imagine the walls, the seats, the stage, and the screen. Put yourself in the front row. Sit back, press a button and start the movie. See yourself up there in vivid color enjoying whatever it is you were seeking. Rewind. Play it again!

 Every time you want to feel a surge of motivation, in

your mind, slip into your own Movie Theater and just play it again.

 This mental imaging allows what goes on in our mind to

have a direct bearing on our actions and the results we produce in our lives.

 So  go  ahead!      Visualize  your  goal,  create  the  mental 

picture and put a movie studio in your head!     

Step 7. Be Persistent.  

 Back your plan with persistence and resolve. The

majority of your success depends on your persistence.  

In  1915  Ty  Cobb  set  up  an  amazing  baseball  record  of 

stealing  96  bases.  Seven  years   later  Max  Carey   set   the   

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 second‐best record with 51 stolen bases.  Was Cobb twice as 

good as Carey? 

 Consider this: Cobb made 134 attempts. Carey made 53.

So Carey's average was much better. Cobb however made 81 more tries and was rewarded with 44 more stolen bases.

 So who is really better? Well, Ty Cobb holds the record.

In the end that’s what matters for baseball players, who holds the record.

 When you get behind the big success stories in any given

field, you often find the most successful have made more attempts and spent longer hours at the given task than anyone else. In other words, they give the law of averages a chance to work in their favor! They just keep on striking out, often against all odds.

 You have to allow yourself to make mistakes with the

understanding that you will learn from those mistakes and achieve your goal. Part of the reason you are reading this book is to learn from someone who has made a lot of mistakes. And let me tell you, I have made a bunch. While I am not happy about making a mistake I also realize I am one step closer to a success.

 Yes, the previous six steps are also essential and crucial,

but if you do not persist your wonderful plan can go down the drain. Your vivid mental images can just evaporate into thin air. You must just keep at it day in day out. Then you are

 

   

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 guaranteed results! To maintain this kind of momentum you have to develop mental toughness.

 To be mentally tough means you minimize the effects of

discouragement and you turn negatives into positives.

 Jack Black in his book "MindStore" uses a computer

expression to combat negativity - "Delete that Program". Whenever a negative thought comes into your mind or when others make negative comments, say to yourself, "Delete that Program" and replace it with a positive thought.

 For example, when you catch yourself thinking, "This is

just not working, this is useless and a waste of time", trigger mental toughness by saying "DELETE THAT PROGRAM". Instead think: "What do I need to do to make this work!" Yes I know old habits are hard to break. Heck if they were easy no one would have any bad habits. It takes time and persistence but oh my, the rewards when you do!

 It  really does  come down  to  just being persistent.   Just 

keep on  going, persist, persist, persist,  and  let  the  good old 

law of averages work for you.  You will realize that goal!   

 Now  the  question  is,  what  goal  are  you  going  to  set 

today?   What  goal  can  you  set  for  your  business, which  is 

going to lift it to new levels?  What goal setting are you going 

to  implement  in your personal  life, which  is going  to have a     

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 positive effect on you and your loved ones?  Take some time 

now and think about it! 

 Then?

 

 JUST DO IT! 

 

 As a final note on goal setting take the 7 steps and rewrite them on a card or in a notebook for frequent reference. Keep them on your computer in a note on your desktop.

 Use the 7 steps as a blueprint.  Keep checking your goal against the 

7 steps frequently to measure your progress and keep yourself on 

track.  

        

Which Form To Choose For Your Business   

 Going into business for yourself may be only one of many 

dreams  you  have.  You may  just want  to  be  your  own  boss. Maybe you want to get the kids through college.  Maybe you just want  to make more money.    Whatever  your  plans,  it's important  to  consider  carefully  the  form  your  business  will take.   You should decide which form you will use before you print  any  business  cards,  or  stationary.      The  forms  your business can take are listed in order of least complex to most 

  

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 complex.  Many of our  students  start out  just  like  I did, as a sole  Proprietorship,  and  as  their  business  generates  income they convert it to a corporation. 

 

   

Sole Proprietorship    

The  simplest  form of business. You are  the  sole owner. The buck stops there. 

   

If  you  own  a  sole will  need  to  fill  out  a 

proprietorship,  you Schedule  C  federal 

income  tax  form  when  you  do  your  yearly taxes.  The  income  you  make  from  your business  is  included with any other  income you  made  that  year.  If  you  make  money you will  have  a  certain  amount  of  tax  that you must pay.  On the other hand running a business   also   means  that   you   generate expenses.  These  expenses  are  deductible against any money you made that year. 

   

Advantages  

• Little  to  no  bureaucratic  red  tape involved 

 • Least expensive to set up 

 

   

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 • Tax? You and the business are the same 

 • Business  losses will  offset  gains  from  other  income 

sources  

   

Disadvantages  

• All    responsibility    for    everything    rests   on    your shoulders 

 • For  liability purposes, you and  the  company are  the 

same  

   

This is a very important thing to consider. For instance, as the  sole proprietor,  if you  face a  reversal of  fortune because of  ill health or  some other unforeseeable circumstance, your creditors will still have rights to your money. 

 

As  I  gained  more  experience  and  mad  more  money  I realized  that  I wanted  to protect myself.   One of  the easiest ways   to   protect   yourself   is   with   a   corporation   or   a partnership.    So  I  embarked  on  a mission  to  learn  as much about  asset  protection  as  I  could.    Asset  protection  simply means  protecting what  I  have  for  the  benefit  of my  family. Simple  steps  give  me  the  comfort  of  running  a  business without any worries. 

 

        

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 Partnerships 

   

Partnerships   fall   between   sole  proprietorships   and corporations  (but  closer  to  sole  proprietorships)  in  terms 

of  complexity regulations.   You 

and  governmental can   have   a    legal 

partnership  without  even  writing  up articles   of   partnership,   though   it's wise to do so. All you basically need to do  to  launch  this  type  of  business  is apply  for  any  required  business permits and start operations. 

  

 Although  most  home  businesses 

are    "one‐person  shops,"    it    is   not uncommon   to   find   those   that  have two  or  more people  who   live that do not. 

partners,  including together  and  those 

   

The  definition  of  a  partnership,  according  to  The Uniform Partnership Act  (which has been adopted by many states),  is  an  association  of  two  or more  persons  to  carry on as co‐owners of a business  for profit."   Let’s take a  look at two types of partnerships: 

  

 1.   General Partnership 

 

  

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 2. Limited Partnership 

 

       

General Partnership    

This  is where  two  or more  people  are  decision‐making owners in the business. 

 

   

Advantages   

 1.    The General partnership is pretty simple. 

 

2.    You and your partners are equals.  You share equally in the management and the profits. 

 

3.    You   have   the   benefit   of   your   partners   financial resources, skills and abilities instead of just your own. 

 

4.    No   one   new   can   join   the   partnership   without permission of all the partners. 

 

5.    You  don't  need  a  contract  between  you  and  your partners, but one is advisable. 

 

   

Disadvantages 

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1.    You will also  share  in  the  responsibility  if one of  the partners  signs a $500,000  contract on be half of  the company,  even  if  you  gave  explicit  instructions  not to! 

 

2.    Each partner is taxed on his share, whether or not the money was distributed during the year. 

  

 Limited Partnership 

   

In  this  arrangement,  there  are  two  kinds  of  partners, General  and  Limited.  The  General  Partner  has  the  same advantages and disadvantages as in a General Partnership. 

 

   

The   Limited  Partner   is  more   like   a   stockholder.  His liability is limited to his investment in the business.  However, this  partner  cannot  be  involved  in  the management  of  the company.   If he does get  involved, he  is considered more  like a general partner. 

 

   

Limited Partnerships are normally formed in conjunction with real estate companies for tax advantages. 

 

   

Advantages   

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1.    Allows  access  to  additional  financing  through  the limited partners. 

 

2.    Can have general partners as well as  limited partners thereby    gaining    advantages    of    both    forms    of business. 

 

   

Disadvantages   

 1.    There is a lot of additional paperwork involved. 

 

2.    As    a    general    partner    you    still    have    all    the disadvantages of a general partnership. 

 Partnerships are not taxed on their income. 

Instead, the income (or losses) "pass through" to the individual partners and are taxed as income to them at their own individual tax rate.  This is similar to the way things are handled in a sole proprietorship, except that additional tax forms must be filed come tax return time. 

  

 Partners must show their partnership income as 

personal income on form 1040 when completing their annual tax returns.  Like the other business structures, the partnership can offset its income by allowable deductible business expenses. 

   

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Corporation    

This  is  by  far  the  most  complex  of  all  the  business structures.   Home  business  owners  that  form  corporations do  so generally  to  take advantage of a major benefit of this type  of  structure:  limitation  of  liability.    The  downside  of having  a  corporation  is  the  added  burden  and  expense  of regulations and red tape, and  in some  instances, the double taxation that hits a corporation. 

  

 Corporations  are  typically  formed  under  the  authority 

of a state government. Creating a corporation is not as quick and  easy  as  forming  a  sole  proprietorship  or  partnership. Creating  a  corporation  is  not  difficult.      I  can  pick  up  any newspaper  today  (like  the Wall Street  Journal or USAToday) and find ads for companies that provide a service to do all of the paperwork for you.   I highly recommend this method.   It saves you a  lot of  time,  especially  if you are not  sure what forms need to be  filed  in your stat.   These companies know all of the rules, regulations and fees associated with creating a corporation.   I have formed a corporation  in as  little as 24 hours.  I simply pick up the phone, tell them the name of the company  I want  to  forma and  the state  (yes you can have a corporation   that   is   formed   in   another   state)   I  want   it created.  24 hours  later I am  in business.  Not difficult at all. The  formation  company  provides  me  with  all  of  the documents  that  I need  to  correctly  fun my business.   I also get  a  corporate  seal  and  stock  certificates  (if  I want  to  sell stock to someone at a later date). 

 

 

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 There  are  two  main  types  of  corporations.      A  “C” 

corporation  and  a  “subchapter  S  corporation”.        The "subchapter S corporation," commonly known as simply  the "S  corporation"  has  become  popular  because  it  offers shareholders    (owners    of    the    company)    the    liability limitations  of  a  corporation,  and  yet  allows   income  and losses  to  pass  through  to  the  shareholders  without  being taxed at  the  corporate  level.   This means you get  all of  the benefits of a full‐fledged corporation, but you are only taxed at your own individual tax rate. 

  

 In  many  ways  a 

corporation  is  the  ideal business  form  even  if  your business  is  very  small. Corporations  are  not necessarily  giant  companies with  offices  in  many  states. They  can  be  tiny  companies 

of one or  two people  (often  referred  to  as  '6Closely Held"). Using  this business  form can be a very  smart move on your part. 

 

   

A  Closely  Held  Corporation  does  not  sell  stock  like  a Public  Corporation  that  is  listed  on  the  New  Your  Stock Exchange.  It is made up of just a few people, (or possibly just yourself  alone!)  who  are  all  involved  in  the  day‐to‐day operations of the business to one degree or another. 

     

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 Advantages 

  

 1.    Depending  on  your  state  of  incorporation  you may 

have as few as one person in your corporation.  

2.    Limited   liability.  The  corporation   is  separate  from you. 

 

3.    The business continues intact even if the owner dies. Ownership of the company is easily transferred. 

 

4.    Fewer rules and regulations  

   

Disadvantages   

 1.   More paperwork and bureaucracy involved 

 2.    Personal Collateral may still be necessary to get loans 

 

3.    Initial cost of incorporation. (costs range from around $100 ‐$600 depending on the state of incorporation) 

  

 Incorporation  fees vary  from  state  to state, however you 

may  always  consider  incorporating  your  business  in  another state, such as Nevada, where the laws favor small businesses. There are many sites on the Internet that can help you form a corporation  at  the  least  possible  cost.        If  you  don’t  have Internet  access,  simply  look  in  the  back  of  the Wall  Street Journal or USA Today newspaper 

 

 

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Be  sure  to  do  your  homework  concerning  the requirements  of  out‐of‐state  corporations  doing  business  in your home state. 

      

Corporate Taxation  

Because  the  subject  of  corporate  taxation  is  far  too complex   to   deal   with   here,   we'll   simply   say   that   a corporation  is  taxed differently  than a partnership or a  sole proprietorship  because  the  corporate  entity  itself  is  taxed on  corporate  income,  and  then  the  shareholders  are  taxed on  the  income  they  receive  from  their  shares  in  the corporation.    In the sole proprietorship and the partnership, the  business  entities  themselves  are  not  taxed  since  all profits are passed to you directly. 

 

                   

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 You  can  own  a  corporation  and  have  the  corporation 

hire you as an employee to manage  it. The corporation pays 

you  a  wage  and  provides  company‐paid  benefits,  such  as 

health insurance.  The wages and benefits are tax deductible 

to the corporation.  You pay taxes on the wages you receive. 

T  he  corporation  pays  corporate  taxes  on  the  profits  that 

remain  after paying  you  for  your wages  and benefits.  I  like 

this  form of  corporation because  I am  able  to pass a  lot of 

expenses to the business that I would not be entitled to as a 

sole proprietor.  For instance I can have my company lease a 

fancy car.  The lease is fully deductible to the company as an 

expense.   I  can also have my  company pay  for my  travel  to 

do research for defaulted mortgages in different parts of the 

country.  

   

This  situation  applies  to  the  regular  corporation  (C corporation),   but   not    to    the   S   corporation.       The   S corporation  is  not  taxed  as  a  business  entity.    Rather,  the income  or  losses  pass  through  to  the  shareholders, where they  are  taxed  as  personal  income,  just  as  happens  in  the sole proprietorship and the partnership. 

 

   

Once  you  have  decided  what  form  your  business  will take,  you  will  need  to  begin  the  process  of  licensing, registering  and  the  actual  legal  steps  necessary  to  properly set up your business. 

     

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Legal Requirements  

   

Always  consult  your  attorney.      I  am  not  a  lawyer  or 

accountant.   Therefore by  law  I cannot give you any  legal or 

accounting  advice.      I  can  however  give  you  my  personal 

opinion.  

   

A  smart  business  owner  knows  when  to  defer  to  an expert.      If  you  have  questions  about  your  books,  taxes, contracts,  rights,  or  your  liability,  get  the  appropriate professional help. 

 

   

Licensing    

To do business you need to have a business licensee. The license  is  a means  for  the  appropriate  government  agencies to register your company to help assure that your actions are legal  and  the  appropriate  taxes  are  paid.    Licensing has  the advantage  of  lending  a  great  deal  of  credibility  to  your business.  Potential clients will be more likely to trust you and feel  comfortable  about  doing  business with  you.   Don't  let this  frighten you.  It’s not a big deal.  Most business  licenses are fairly inexpensive‐for instance in Colorado it only costs $8 

 

   

As  a  default mortgage  investor who  buys  for  his  own  

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 portfolio you do not need any type of a specialty  license such as a mortgage broker would need.  Since you actually become the owner of the mortgages, which you find, regulations that apply  to  mortgage  brokers  do  not  apply  to  you.  However, obtaining  a  simple  business  license  will  give  you  credibility and legitimacy that you would not have otherwise.   On a side note you need to verify  if your state requires any  licensing  in order  to  resell  defaulted mortgages.    Usually  this  license  is not difficult to obtain. 

 

   

To get your business license you should contact your local licensing agency. There is usually a small fee for the license. If you  need  help  finding  the  correct  agency,  call  your  local chamber of commerce listed in your phone book. 

 

   

Naming Your Business    

Give  some  thought  to  this  decision.  The  name  of  your business  is often the first  image a potential client has of you. And again, first  impressions are lasting  impressions.  You may want  to get some outside  input  for  this.   Sit down with your spouse   or   another   relative   and   brainstorm.   Call   up   your friends and get their help.  A catchy name can help potential clients remember you.  It should convey: 

 

   

• Reliability   

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 • Creativity 

 • Professional Ability 

 • Trustworthiness 

      

If you are a Sole Proprietorship you have three options.  

   

1.    Use your own name.  

The  advantage  is  you  do  not  have  to  jump  through any  legal hoops or go to any time and expense to use it.   You might want  to use your name  is  if  the public already   recognizes   it.   In   other  words   you   are   a famous movie  star, sports  figure, or beloved political figure. However,  that  last one may  be  impossible  to attain and the others leave most of us out. 

 

   

2.    Set up a DBA.  

This  stands  for  “Doing  Business  As”.      Officially  the business   is   your   actual  name  but   checks   can  be written out to  the DBA name and still cashed.   If you chose this it may be a good idea to take the third step and  register  the DBA as a  trade name when you can afford it. 

    

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 3.    Register a trade name. 

 

This  is  the most  involved but  also  protects  you  to  a greater extent.   A good name  is a valuable asset and registering  it  as  a  trade  name  assures  that  you will not lose it. 

  

 Federal Employer Identification Number 

   

Sole  proprietors  who  are  not  employers  usually  do not  have  to  apply  for  a  Federal  Employer  Identification Number (EIN), unless they engage in certain types of business activities. 

 

   

All  other  business  entity  types  must  apply  for  this registration whether  they have employees or not.   For more information  on  this  registration,  call  the  IRS  at  1‐800‐829‐ 1040 or check out the IRS website online. 

 

   

A  recent  change  at  the  IRS  allows  you  to  apply  for your number by faxing form SS4 to the  IRS.    You can receive your EIN within 5 days to 6 weeks.   That  is the standard time frame  the  IRS will  give  you  on when  to  expect  your  EIN.    I have, however  received my  EIN numbers back  in  as  little  as three days. 

    

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 In most cases to open up a business checking account 

you will need this number.  If you do not have an EIN number tell  the  bank  it  is  applied  for  or  use  your  social  security number  as  a means  of  identification  until  you  receive  your official EIN. 

 

   

Developing your Business Image.    

Your success as a business is going to depend a great deal on your ability  to attract clients or customers.   This will be a function  of  the  quality  and  professionalism  you  portray  in your business image.  Remember, first impressions are lasting impressions. 

 

   

Let your guiding motto be  "Classy but not  flashy".   It  is possible  to  go  overboard  with  your  image.    I  always  think back  to  a  commercial  that  I  saw  where  tennis  ace  Andre Agassi made what  I  considered  a  very  profound  statement: “Image Is Everything”.  Protect your image. 

  

 What You Can “Not” Do 

   

As  far as  the  legalities of your business name,  if you are incorporated in any way, you must register a trade name, and it  must   include   the  words  Corporation,  Company  or   the initials Inc. 

 

 

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It   is   prohibited   or   restricted   to   use   terms   such   as "medical"  "national"  "bank"  “insurance”  or  "trust"  in  your company name. 

 

   

Most states will reject a name that closely resembles one already  on  file.  You may  do  a  name  search  on  a  statewide basis,  however,  you may wish  to  obtain  the  services  of  an attorney if you want to do a name search on a national level. 

      

**NOTE**  

   

Names  like  Bob’s Funding  or  Annie Enterprises don't convey an  image of maturity or reliability. Annie sounds friendly, but not too serious.   Bob sounds  as  if  he  still  hasn't made  up  his mind what  his  company  does.    Names  of  this  type sound as  if  they're  running  the business out of the spare bedroom.  Even if they are, they don’t need  to  convey  that message  in  the  company name. 

       

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Business Stationary   

 You will need to choose a font style, ink color or colors, a 

paper,  and  possibly  a  logo.  Creativity  is  a  valuable  asset  to have at this stage of the process.  If you are not very creative, consider hiring a professional graphic designer.   If you cannot afford  this,  ask  to  borrow  a  copy  of  some  stationary  and business cards from local businesses.  Follow their example. 

  

 Utilize  the  services  of  your  local  copy  shop.    Many  of 

them have computers and  laser printers  they can rent  in the store. Kinko’s  is a perfect example of this service.   If you are familiar with the programs and take some time to think it out first, you can save a lot of money by doing it yourself 

  

 Phone Etiquette 

   

A  portion  of  your  business will  be  conducted  over  the phone.   Potential clients paint a mental picture of you when they  talk  to  you on  the phone.   If  you  smile when  you  talk, they will be able to hear it in your voice.  A helpful tool I use is to  have  a mirror  next  to  the  phone.    When  you  are on  the phone  look  in the mirror.   If you have a smile on your face  it will come across in your voice. 

    

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 Pay  particular  attention  to  the  answering  machine 

message. When people call you after hours they should get a professional  sounding  message  giving  them  the  option  of leaving a  recorded message  for you. There  is no need  to be humorous or  lengthy.  Identify your business,  thank  them  for calling, and let them quickly leave a message for you. 

                                       

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 Marketing 

   

An important  ingredient of every successful business  is to have an effective marketing strategy.  However,  it  is easy  for a business  to  spend  its profits and  then  some on  ineffective advertising.   I can personally attest to this statement.   I have wasted  thousands  of  dollars  over  the  years  marketing  in areas  that  produced  little  if  even  response.    Therefore  it  is imperative  that you  to be very  selective  in your approach  to advertising.    Do  NOT  spend  big  dollars  when  you  are  just starting out.  If you are like I was you typically have more time than money.      Use  your  time  instead  of  your  hard  earned money.      Make  face‐to‐face  contact  with  referral  sources instead  of  advertising  in  the  newspaper.    One  of  the most effective places to get referrals for defaulted mortgages  is an attorney.    Set  up  face‐to‐face  meetings  with  the  attorneys and  get  to  know  them  and  let  them  get  to  know  you, what you  do  and  how  it  can  help  their  client  get  some  much needed cash for a worthless document  (their perception, not ours). 

  

 Through selective advertising you will minimize your cost 

and  reach  the  people  who  are  most  likely  to  need  your services.    You  should  give  a  lot  of  thought  to  the  strategy before  you  ever put  it  into  action.   Before  spending  a  great deal on a  large  campaign,  try your  ideas with a  test market. See what kind of response you get.  Once you know what  to expect you can more accurately 

    

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 Another  important  consideration  when  designing 

advertising  is  to  do  it  with  quality.  Always  maintain  a professional   image   with   each   advertising   campaign   you launch. 

 

          

Your Office Location   

 You will need to decide where to locate the operations of 

your new business.   A default mortgage purchasing business 

does not  require high visibility on a busy  street.   As a  result 

you can save a great deal of costs.  Anywhere you can  locate 

that has the simple necessities you will need is fine.  

   

In many cases there  is only one option.  Lack of financing 

may necessitate that the business be out of your home.  The 

vast majority  of  our  students work  out  of  their  home.   Still 

you may want to think about an office location for later when 

your business really gets going and you need more space.  

   

You will need:   

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• A  space  to  put  a  desk,  a  chair,  a  filing  cabinet,  and 

possibly little room for a visiting client if they come to 

see  you  (which  is  very  unusual).        This  can  be 

accomplished with  as  little  as  100  square  feet.    You 

may want more  room  later  but  leave  that  until  you 

can afford it.  

• Additionally you will need a phone jack, and of course 

electric outlets.  

• Your home situation may make it nearly impossible to 

do business there.  If that is the case you should try to 

find an office.  There are many ways economize with 

office space. When you are starting out, economizing 

may be a necessity.  You may have a friend or relative 

who has extra space in an existing business.  You may 

have  access  to  a  vacant  apartment  or  addition  to  a 

friend’s house.   If  there  is a high vacancy  rate  in  the 

commercial  real  estate  sector,  you may  be  able  to 

negotiate a tremendous deal on some space with the 

first 1‐2 months free.  A local apartment complex may 

have several vacancies. You may be able to negotiate 

a  deal  for  a  small  apartment  to  work  from.     Be 

creative and consider every option  

        

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 Equipment 

   

Here  is  an  area  that  needs  to  be well  thought  out  and planned.   If you are  like most start‐up businesses you do not have  unlimited  funding.      You  will  have  to  decide  what equipment  is most  necessary  and what  you will  have  to  do without, for a while anyway. 

 

   

To  start  out,  economize  as much  as  possible. Once you become profitable you can turn some of the profits back 

into  your  company  and acquire  other  items  or upgrade  the  equipment  you have.          Don't  make  the mistake  of  renting  a  plush office  and  furnishing  it  with stylish decor and  state of  the art  equipment. Most  start‐up companies would  not  survive such  a  large  negative  cash flow      in     their     beginning 

stages.       

Equipment to consider acquiring may include the following:  

• Computer   

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 • Modem 

 • Various software programs 

 • Phones and additional phone lines 

 • Fax machine 

 • Printer 

 • Portable copy machine 

 

   

(If you are completely computer illiterate I suggest that you sign up for a simple introductory course at the local community college, or spend a few hours with some of the self-paced tutoring programs you can install right on your computer. You can also visit your local computer store for a schedule of classes that are hosting by the computer store).

 

   

The Phone & Phone‐Lines  

   

In the beginning you can get away with using one phone 

line  and  sharing  it  between  the  computer,  the  phone  and 

possibly  a  fax,  but  when  you  get  going,  this  is  going  to 

become  too complicated,  if not  impossible.   (Not  to mention 

rather   inconvenient  for  your  family   if  you  happen  to  be 

monopolizing the only phone line in the house.)     

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 You'll  probably  want  to  get  a  line  dedicated  to  your 

computer  and  a  separate  one  for  your  business  phone. 

Additional lines into a home are not very expensive.       

The FAX  

   

For  the  at  home  office,  look  into  getting  a  fax machine 

that has a phone and an answering machine in it. It should be 

able  to  differentiate  between  a  phone  call  and  a  fax 

transmission automatically.   

 Another option  is  to have a  fax board  in your computer. 

This  gives  you  a  lot of  flexibility, unless  you  receive  a  lot of 

faxes.  This  kind  of  program  will  generally  run  in  the 

background waiting for a calls then when you receive a fax  it 

will  interrupt  what  you  are  doing  and  tell  you  that  it's 

receiving.  When  the  transmission  is  complete,  it'll  return 

control back to you.  

   

Fax boards have  the advantage of  letting you store  faxes 

on  file  and  even  manipulate  the  text  and  data   in  some 

programs. Pretty handy, and the print quality of the material    

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 is excellent compared  to  the often  fuzzy  look of a  standard 

FAX.  An example of this is available at eFax.com.  

   

Printers  

   

There  are  huge  differences  in  the  price,  capabilities  and 

quality of printers.  

   

Laser  

   

For  top quality documents,  letters,  reports etc. you can't 

beat a  laser printer.   A  laser printer actually  sears  the  toner 

onto  the paper. T he print quality  is  routinely 300  ‐ 600 dpi. 

The price has dropped  in the past few years and the number 

of  options  available  is  expanding  all  the  time,  like  separate 

trays  for  feeding  envelopes  and  various  paper  sizes.    Some 

even duplex automatically.    Lasers typically print from 4  ‐ 12 

pages per minute.  

   

Ink let  

      

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 These actually  spray  the  ink on  the paper, and  can offer 

color options. They're slower thin  lasers (3 pages per minute) 

but they are less expensive.       

What  I have covered  is  just some of the basics of getting 

your own full‐fledged business going with the least amount of 

hassle.     You  can  do   it.     Don’t   let  anyone  else   tell  you 

otherwise.   More people  fail, not because  they  can’t do  the 

work, but because the support structure around them causes 

them  to  “believe”  that  they  can’t.    I  heard  a  phrase  once 

“don’t  try  …do”.    If  you  only  try  then  you  leave  open  the 

possibility  that  you will  fail.   If  you  just  “do  it”  like  the Nike 

commercial says you will be successful.       

The above is not legal or accounting advice.  Specific questions 

should be directed to your own professional advisors.  

     

OK, MikeRick, But What Should I Do?  

     

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 I know all of the information I have covered about 

starting a business is great, but I am sure you are trying to 

figure out which way you should go.  Since I do not know you 

or how you eventually want to run your life I cannot give you 

a specific answer.  Also, a single answer would not be suitable 

for every reader.  

   

So, what to do?  I think the simplest answer is to tell you 

what I have done. By seeing how I have organized my 

business you should be able to gain some insight into starting 

your own business.  I do want to point out that in my opinion 

there is not a single answer on how to start a business.  There 

are many choices and they all work.  

   

When I got started I did not have a clue about what I was 

doing.  I learned everything by trial and error.  I did not even 

know if I should start and official company, so I just got 

started on my own.  If you remember from the start of this 

chapter I talked about starting out in my parents garage. 

Why did I start in my parent’s garage?  Simple.  I didn’t have 

nay money for a place of my own.  “You can’t spend what you 

don’t have” is a phrase I have heard many times.  

Since I was starting out with nothing I essentially had to 

make money from nothing.  Well, not really nothing.  I did 

have time.  I could invest my time to get started.  So that’s 

what I did.  I used my time and started to aggressively try to   

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 figure out the defaulted paper business.  Unfortunately there 

was no one to teach what I needed to know.  I learned 

everything from trial and error.  

   

As a one‐person company I had to do everything.  With no 

money I obviously could not start a company (even if I knew 

what you now know from this chapter).  I started out as a Sole 

Proprietor.  I ran the business as me.  I had no employees, no 

fancy office or furniture. My fancy car was a pale blue AMC 

Hornet.  It was great on gas and I was happy to have a car at 

all.  I started to go to seminars about real estate and read as 

many books as I could. Most of the books I got from the 

library.  It turns out the library has a lot of the books you 

would find in the bookstore.  The cost for my books?  $0. Well, 

actually I did pay $1.00 for the library card.  By being creative 

and using my time instead of money (which I did not have) I 

was able to get started with no money out of pocket.  

   

I started looking for deals.  I looked and foreclosures, 

mortgages, judgments and handyman special properties.  I 

found that all of the investors I dealt with wanted the very 

best deals that would yield them the highest rate of return 

for the least amount of investment.  Understandable, since as 

I gained more experience I found I now do the same thing.  In 

the beginning I had no money to buy any of these assets.  I 

had to flip the deals to someone who had the cash.    

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Financing Your Business   

 There are many ways  to  finance a business.   You  can go 

the traditional way and borrow money from the bank or get a Small  Business  Administration  (SBA)  loan.    You  can  borrow money  from  friends  and  family.      What  if  you  don’t  have anyone that you feel you can borrow the money from or your credit  isn’t good enough  to obtain a  loan  (or  in my case you have no credit)?  You have to use your brain and get creative. What are some of the ways that you can generate cash to get your business started? 

  

 Flip The Deals To Heartview 

  

 You can bring  the note  to our  firm  (Heartview Financial). 

We will buy the note and pay you a finder’s fee.  Let me show you how this works. 

  

 Let’s use the same people as in earlier chapters. Jill is the 

note holder  (Mortgagee),  Jack  is  the note payor  (Mortgagor) and  you  (Steve)  are  the  researcher.   Jill has  a  $70,000  note that  is  in default.   Steve contacts  Jill  (lead came  from a  local attorney who  knows  Jill)  and  finds  out  that  she  is willing  to sell  the mortgage. You get some basic  information about  the mortgage  such  as  the  amount,  interest  rate,  payment schedule,  information  on  Jack,  and  information  about  the 

 

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 property  such  as  type of  house, number of beds  and  baths, etc.       You  then contact Heartview Financial and gives us  the information.    You  ask  for  a  quote  on  what  we  would  be willing to pay for this non‐paying mortgage.   If you (Steve the student) knew we would offer $40,000 for the note you now have a potential deal  in hand.   You call  Jill on the phone and say  “Jill  I went  over  the  numbers with my  partner  and  the best we can do is $35,000”.  Once Jill accepts the $35,000 you call  Heartview  back  up  and we  proceed  to  closing.    At  the closing table Heartview will cut two checks.  One to Jill for the $35,000 and one check to you for $5,000.  The $5,000 is pure profit  for  you without  having  to  buy  the mortgage  or  deal with  Jack  in any way.   You walk away with five grand and go on to the next deal.   Imagine doing  just two of these deals a month.  That makes an extra $10,000 in you bank account for doing  some  simple  research  or  just  simply  running  an  ad. Wow. 

  

 Is   $5,000   from   one   simple   deal   enough   to   start   a 

business?      For me  it was.      I  flipped  the  deals  I  found  to investors who had the cash to buy the asset. 

  

 As I built up the business I found that I was making more 

money and  that  I wanted  to  start  to keep some of  the deals myself  and  also  do  more  deals  on  a   larger   scale.     This required  a  different  form  of  organization  to  accomplish my goal.  I head into the partnership arena. 

  

 Flip The Deals to Other Investors 

  

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You  are  not  locked  in  to  bringing  the  defaulted  paper deals that you find only to Heartview Financial.  You can place ads  in  the  newspaper  looking  for  investors  who  want  an above  average  rate  of  return  on  their  investments.   When you  find an  investor  that wants  to partner with you are able to open a new realm of possibilities. 

  

 You  can  have  the  investor  put  up  all  of  the  cash  to 

purchase the defaulted mortgage.  You can have the  investor act  just  like Heartview.   The  investor agrees  to purchase  the note  for  the same $40,000 as outlined above.   You still offer Jill  the  same  $35,000.   You walk  away with  $5,000  in  cash. The  best  benefit  is  that  you  now  have  a  regular  investor  in your back pocket to purchase the deals that you find. 

  

 What about a neighbor or associate at work who wants a 

greater  return on  their  retirement  funds?   You can have  the associate act  like Heartview and use money from their  IRA to purchase the defaulted mortgage for the same $40,000.   You still walk away with $5,000 when  Jill accepts $35,000  for  the purchase of her defaulted note. 

 

As  I  flipped more  and more  deals  I  started  to  look  for other ways of generating a  larger profit.   One way  that  I did this  is  that  I  found  investors who were willing  to put up  the money  for  the  deals  I  found,  but  with  one  variation  from what we have already  talked about.   The  investor put up the money  to  purchase  the  defaulted  paper.        I  would  be responsible  for  getting  Jack  to  refinance  his  house, bring  it 

  

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 current or sell the property.   In each of these situations I was able  to  share 50‐50  the  generated profits with  the  investor. So  if we  look at one of our earlier examples where Steve was able to buy the defaulted mortgage for $40,000.    If you were Steve and  found an  investor  to put up all of  the  funds what would be your profit  if the total payoff on the note were the original amount of $70,000.   $40,000 would go back  to your investor  as  repayment  of  his  investment.   That  now  leaves $30,000  ($70,000  ‐ $40,000).   Your deal  is  to  split  the profits with the investor 50 –50.  So half of the $30,000 profit means your share  is $15,000.   Compare  this to a profit of $5,000 by simply   flipping   the   deal   to   an   investor.     You  make   an additional  $10,000  by  keeping  yourself  in  the  deal.    How many of these deals do you need a month? 

 

     

Reinvesting Your Profits Into Your Business  

As  I flipped deals to other  investors  I started to make very good money.   I now  started  reinvesting my profits back into  my  business  so  that  I  would  not  be  dependant  on investors  to  buy  the  deals  that  I  found.    This  required  that become a corporation so that I could really take advantage of all of the  liability protection afforded a corporation as well as for the tremendous tax benefits.  This is where I am at now.  I have a “C” corporation to handle our deals.  I have save funds over the years so that I can purchase defaulted paper without requiring the need for outside  investors.    I have the ability to control how  I want  things  in my company  to  run.   I  can also control  how  much  time  I  spend  in  the  business.      I  have employees now who handle all of the little details that I used 

 

  

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 to  do myself.    I  can  focus  on  the  negotiating  for  deals  and leave the paperwork to someone else. 

  

 Let’s  say  that  you  do  the  same  things  that  I  have 

done.   You are out at dinner one night having dinner with a friend  at  the  table  next  to  you  hear  two  gentlemen  talking about some legal cases they are handling for some real estate investors.      You  hear  one  of  the  lawyers mention  how  he advised  his  client  (Jill)  that  she  needs  to  foreclose  on  her mortgage  if  she wants  to  get  her money  back. Overhearing this  you  casually  lean  over  and  introduce  yourself  to  the attorney and  tell him  that you help out  a  lot of people who can’t get paid on  their mortgages when  they carried back a note  after  they  sold  their  property.  The  attorney  agrees  to give your name and number to Jill to see if she is interested in selling her defaulted mortgage.  Jill calls you and says that she wants  to  sell  her  defaulted  mortgage.        After  a  little negotiating  you  negotiate  to  buy  the  $70,000  defaulted mortgage for $40,000.  After you buy the defaulted mortgage from Jill, you contact Jack to see what you can do to help him solve his problem.   Jack tells you that circumstances have not been very kind to him and he has lost his job.  He wants to go back where his  family  lives  in Texas.   He wants out but does not have any money to move.  You offer Jack $5,000 to assist him with  his moving  expenses.    In  return  Jack will  sign  the house over to you by Deed In Lieu Of Foreclosure.  By signing the  house  over  to  you with  a  Deed  In  Lieu  Jack  will  avoid foreclosure and will save his credit  rating.   In a  (DELETE “A”) addition Jack gets $5,000 that he can use to start over. 

 

What can you do now?  

   

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 • You  can  rent  the  property  out  and  keep  the 

property as a very profitable rental.  

• You can sell the property a full retail value.   If the  house  sells  for  $100,000  what  is  your profit.    You  have  your  initial  investment  of $40,000 plus  the $5,000 you paid  to  Jack  to help him start over.  Your total  investment  is $45,000.  When    the   property    sells    for $100,000 you walk away with a cool $55,000 in profit. 

  

 Have  you  noticed  a  pattern  over  the  last  few 

examples?      You may  have  noticed  that  as  you  gain more experience  and  you  build  your  business  your  profit  also increases.   It doesn’t  just  increase  it  increases by a multiple. We went from $5,000 to $15,000 to a whopping $55,000. 

  

 So  is  starting  a  defaulted  mortgage  business  really 

difficult?    No.    Is  it profitable?    Absolutely!    But, how much money can you make?  As much as you want.  Follow a simple plan and success is yours.  Some of the simplest plans are not very sexy.   In fact they can sometimes be boring.   If a boring, simple process will get you to your goals, would you do  it?   I would and I do.  Let me show you how you can make so much money you can hardly stand yourself. 

        

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F o r m   o f   O r g a n i z a t i o n   ‐   S e l e c t i o n   C h a r t 

Circumstances Surrounding

Your Business 

Recommende

d Form of 

Business 

Reasons for Recommended Form 

One owner  Sole

Proprietorship Simplicity 

Just starting‐up  Sole 

Proprietorship 

Requires that only a Schedule" 

C" be filed 

Likely to generate an 

initial loss 

Sole 

Proprietorship 

Provides immediate low‐cost 

start‐up 

Not certain you will stay 

with the business 

Sole 

Proprietorship 

Business loss can shelter personal 

income from other sources 

Business becomes 

profitable "S" Corporation Can stop business without tax 

impact if no sales are made 

More than one owner  "S" Corporation You can take an appropriate wage 

plus tax favored distribution of 

You provide a 

"professional service" 

(such as a doctor, lawyer, 

"S" CorporationPartnership form not 

recommended; keeps tax benefits 

of sole proprietorship plus other 

You anticipate selling the 

assets of your existing 

corporation 

"S" CorporationAvoids designation as a personal 

service corporation with its flat tax 

rate of 34% 

Your business is profitable

and you do not need or 

want to take dollars out 

"C" CorporationTo avoid double taxation on sale of 

business assets (in effect if a "C" 

Corporation) 

You already have a "C" 

Corporation, or are 

buying one that has a Net

"C" Corporation"C" Corporation tax rates stay 

lower longer (@ 15% up to 

$50,000) as compared to 

Under all business 

circumstances 

Partnership 

form not 

currently 

recommended

In this manner, you can offset 

future profits from this" C" 

Corporation with net 

operating loss carry‐over 

 

      

Organization                                    

The above is not legal or accounting advice. Specific questions should be directed to your own professional advisors.

 

   

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CHAPTER EIGHT

MARKETING FOR MILLION$

   

Create a Marketing Mindset     

Marketing and cash flow are at the top of every "how to succeed in business" list. If people don't know about you, they can't buy from you. If you don't handle the money coming in and going out profitably, you won't last long. It's that simple.

 "I'm too busy to get out and do more marketing." "I get enough business through referrals." "I don't like cold calling." "I can't afford to hire any sales staff." “Advertising is too expensive." "I'm just a small home-based business." "Networking events don't work." Sound familiar?

 What if you could promote yourself, and your products (buying defaulted paper) and services easily and cost effectively? What if you knew it was extremely simple and

  

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 didn't cost anything? You'd probably think that you were being offered a "get rich quick" scheme.

 But there are no smoke and mirrors here. My experience at running my own companies has shown me that marketing is an important key to growing any business.

 After teaching for years on how to creatively make wealth a recurring issue that has always come up is that people do not have any idea what marketing is or how to do marketing effectively for the least cost.

 Marketing in a nutshell is:

 

 

• 1st An Attitude

• 2nd A Plan • 3rd A System

 

 Very few people have any direct experience in marketing. An MBA in marketing coupled with a corporate job in the field does not guarantee you'll be successful using the same techniques in a small business, especially the defaulted paper business.

 This is good news. It means you don't need a degree in marketing. By using the same determination it's taken you read this book and get started you can learn to market it.

 Marketing activities are meant to get your product or service known to as many of the right people as possible. These potential clients are prospects. Start to build a database as soon

  

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 as you decide on your business. This is essential to a growing business. Use a Rolodex, or a notebook named "prospects," or a PDA (like a Palm Pilot), or contact management software like ACT™, or build your own in FileMakerPro™ or Goldmine. But start now. All of your marketing efforts will fill the funnel and contact names and information must be recorded in your database. You'll need this information not only to promote your business, but also to measure the success of each activity.

 Always think marketing.

 

 See opportunities in everything you do, everyone you meet, every supplier you buy from, every client you have. See an opportunity in every problem.

 Marketing is a mindset. And it can be learned.

 

 

How to Develop a Marketing Mindset  

 • Learn from experts. 

• Immerse yourself in the marketing thinking. 

• Read books by creative marketers like Tom Peters, 

Jay Levinson, Jay Abraham, Seth Godin and Brian 

Tracy. 

• Subscribe to e‐newsletters on sales and marketing. 

Try what they suggest. 

• Attend seminars including those offered by your 

Chamber of Commerce. Participate in teleclasses, the 

newest type of distance education.  

  

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 • Join a "networking" association that focuses on sales. 

• One new idea that works is worth the cost of any one 

of these. 

• Just decide! Changing your thinking can be that easy.  

 Let’s Develop Our Three Step Process

 

 Step 1

The first step is to see the world through different eyes.

Marketing doesn't just happen. You have to create a plan that you work to fulfill. It is important to know your field of business and your competition. Make a list of the marketing methods that you think will increase your exposure to potential customers. The list will differ for each kind of business. It might include items such as:

 • Online marketing: newsgroups, forums, mailing lists,

search engines • Creating strategic alliances with other companies

• Advertising in association publications

• Advertising in newsletters

• Doing radio and/or TV interviews.  

 Keep your eyes open and your mind tuned to how everything around you is marketed and look for what is getting results. When you get flyers at your door, read them and ask yourself which ones you may buy from and which you will throw away. Look at signs in the windows of shops and restaurants.

   

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 What are they featuring? What captures your attention and why?

 Talk to friends, family and clients about radio and television advertisements. Which ones do they remember? Watch and listen to how they describe the ad and their reaction. Do they remember what the product is? Make marketing thinking part of your daily routine.

 Step 2

 

 Next, think about how to use these ideas, tools and techniques in your business. Understand the process.

 Build a marketing plan that has a variety of approaches. 

 

 • Direct Mail 

• Networking 

• Web site 

• Newsletter 

• Ads in targeted publications (like this one) 

• Trade shows 

• Co‐marketing programs with other businesses  

 Test the effectiveness of each activity. Major advertising firms 

are now practicing "accountability" advertising with their 

clients. If the ads don't get results, they don't get paid the full 

sum.     

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 Let defaulted mortgage owners know you are in the business. 

It takes at least three to seven contacts (can include seeing 

your add in the paper or direct mail) before someone decides 

to buy or sell on average. 

 Think people.  People buy products and services. In order to 

find more customers, you have to find more people.  As 

obvious as this may sound, some investors forget that it's all 

about connecting to people.    

Step 3  

 Develop a system that is easy to follow so that you actually 

do it. Don't promise to send them a newsletter every week 

when you know once a month is all you have time for. Be 

easy on yourself. 

 Selling is different from marketing. Marketing gets a prospect 

to your door. Sales skills are what you use to help them to 

make the decision to buy from you. Hone these skills and 

have a system for the sales process that you follow. You don't 

want to sell to people; you want them to sell to you. There is 

a subtle and significant difference between these two ideas. 

People to whom you sell sometimes feel as if they have been 

coerced. Those who sell to you believe that they have been a 

part of the process and the decision has been theirs. 

 

Maintain your relationships with your referral sources. The 

most important sale you get is the second sale. Set up a  

 

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 simple system to stay in touch and continually look for 

additional products and services that demonstrate that you 

have their best interests at heart. Referral business costs less 

than half of what it does to get a new client. 

 Get out of the house. Once you have a "marketing mindset" and your systems are in place, you will see people and places to promote your business everywhere.

 Marketing. It’s everywhere.

 

 Sometimes you recognize it. Sometimes it sneaks up and grabs you from behind.

 It’s in your home, on your street, in the hallways of your children’s schools and even where you worship. You might welcome it under the right circumstances or curse it when it interrupts your dinner. And even though your conscious mind doesn’t always know it’s there, your unconscious mind likely is eating it up with a spoon.

 It’s marketing.

 

 And today literally everybody markets. Marketing no longer just applies to the usual stuff - tires, milk and widgets. Today we’re marketing products, services, organizations, people, positions and ideas that just a few years ago never would have found themselves in the same sentence as the “m” word.

 Just what is “marketing?" And why should you care?

 

   

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 You don’t need an MBA for this one. Marketing at its most fundamental is a process that helps you exchange something of value for something you need.

 That process usually involves money. In our case you are exchanging your money for a defaulted mortgage.

 Marketing is about expanding your capacity to better serve and advocate for your customers. This is an age of expanding donor choice, cause burnout, diminished attention spans, information overload and some very tough competition. You market or you perish.

 It Starts With a Plan

 

 Let me tell you what marketing isn’t. Marketing isn’t brochures, press clips, ink pens with your organization’s name on them, etc. etc. These may be marketing tactics and tools, but marketing is a whole lot bigger than the sum of those things. Marketing is a mindset that needs to permeate your organization - from the way you answer the phone to the way you design your most complex programmatic initiative.

 But like all good things, marketing starts with a plan. Whether you call it a strategic plan or an actual marketing plan, any plan that doesn’t take these five critical questions into account is probably a waste of paper: Once you have set up a business, either online or off, marketing becomes a constant and ongoing activity that you MUST pay attention to. Without marketing and promotion, you won't have a business.

    

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 You need a marketing mindset. This means that the marketing door of your mind is always open. The question that you need to engrave in your mind is, "What can I do today to let more people know about the benefits of my product or service."

 Techniques for Marketing

 

 Networking is the least costly method of marketing. It is also just as misunderstood.

 Networking will get names for you of potential clients, connect you to influential people who can promote your business to their network, and most important, introduce you to interesting people.

    

Networking with a twist  

 

"You can make more friends in two months by becoming more interested in other people than you can in two years by trying to get people interested in you." — Dale Carnegie

 

 

Some ways to meet more potential clients:  

 • Attend networking events. These can be related to 

your industry (like a trade show), your community 

(like Rotary) or specifically to do business with others.    

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 • Visit Web sites that your clients may go to. Contact 

the individual whose site it is by phone. If there's a 

connection between you then set up a meeting.   I 

like to create websites that let people know I buy 

defaulted paper.  If I don’t ell them what I do haw are 

they going to read my mind? 

 There are many ways to get out of the house to network. Be creative. Reach out and connect… with your clients… with your suppliers… with your prospects… and with your key influential contacts.

 Here's a simple task to put on your to-do list: Schedule time every day to make phone calls. Think of it as another form of exercising. Make this a habit. You need only 30 minutes. But call new people every day. Calls made today will create sales in 30, 60 or 90 days.

 Get up and walk around as you talk. Buy a headset to make this easy. Smile as you talk. You would be surprised to see how many people look like they are very angry on the phone when they talk. A technique that I use to ensure that I am friendly on the phone is to look into a mirror when I speak. If I am frowning while I am on the phone it will come across to the person on the other end of the line. The person on the other end of the line really can see it.

 Be curious. New ideas will become routine for you and you'll wonder how you ever did business without this daily dose of networking-the human kind.

   

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 “But Rick, what good is marketing I don’t where to market my 

services? 

 Great question.  Below is a list of several great ways to find 

defaulted paper deals.  These are not all the techniques I use. 

In fact there are over 20 different ways to find defaulted 

paper.     

7 Ways To Market For Defaulted Mortgages

 

   

1.    Direct Mail  

 Direct mail is by far my favorite way of marketing for

defaulted paper deals.  

   

2.    Land Records  

 Visit the local courthouse and research for mortgages 

and trust deeds 

 

3.    Classified Ads  

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 “I BUY DELINQUENT PAPER, CALL RICK 719‐598‐6361” 

 

   

4.    Lawyers  

Focus on real estate and foreclosure attorneys. They will have many files of real estate closings they handled and they may carry back a mortgage in lieu of payment of legal fees. 

 

   

5.    Realtors  

Realtors will have files of property closings going back several years and records of mortgages carried back by the seller. 

 

   

6.    Display Ads  

See samples in section for marketing letters, flyers and 

postcards.  

   

7.   Networking  

Maintain your relationships with your referral 

sources.  You never know where your next deal is 

going to come from; so let everyone know you are in 

the business.  

  

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 Have you ever watched an infomercial on TV?  Some ad 

about cooking, the latest diet fad or exercise routine? Why 

do you think these infomercials are on TV? 

 To sell products. 

 

 It is an industry statistic that 19 out of 20 infomercials 

fail.  Yet these companies keep making new ones. Why. 

Because the ones that do work pay off in huge dollar 

amounts.  The average infomercial costs about $200,000 to 

create.  Companies are not going to keep creating them and 

paying for all of the TV time unless they expect a huge payoff 

at the end.  Part of what a company does by running an 

infomercial is to create public awareness.  Have you ever 

seen an infomercial run two times in a row?  You might think 

the TV station made a mistake or that the producers of the 

infomercial mad a big mistake.  Quite the contrary.  By 

repeating the infomercial they are keeping you focused on 

their product.  The longer you focus on their product the 

higher the likelihood that you will purchase whatever product 

they are offering. 

 I don’t know about you but I don’t want to spend 

$200,000 to market a product without knowing what the 

outcome will be. 

 So how do we reduce our cost and increase our profits 

through marketing?  

    

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My Favorite Technique  

My favorite technique for marketing is through direct 

mail. 

 Do you think direct mail works?  If not then why did you 

respond to my mail piece about this book?  Direct mail has 

been around for a long time and will continue to be a major 

source of marketing. Why?  Because it works. 

 The Best Kept Secret To Direct Mail

 

 Direct mail can be effective or it can be a total waste of 

time and money.  The key ingredient is to get the note owner 

to open your letter so they can read your message.  If they 

don’t open your letter it does not matter how great and 

wonderful your offer is to them because they never see it. 

 I want to maximize my efforts and success rate.  Here is how I 

do it:  

 1.    Hand write the address son the envelope 

2.    Use a real stamp‐not bulk mail rate 

3.    Use a sticky return address label that you would use 

for your own personal mail 

4.    Stamp on the front of the envelope “Important 

Information Enclosed” or “Time Sensitive Material” or 

“One Time Offer”      

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 I have found the above will increase my response rate 

tremendously.  Don’t tell everyone about this technique, as it 

will reduce the future effectiveness of your marketing efforts.    

 

Promoting Your Services  

 Here are five key things to consider when developing the promotional strategy for your business.

   

1.    Are you networking 

enough? For many service 

businesses, networking is the key 

promotional technique. Join 

organizations; get to know people; 

get involved; keep in touch with people; do what you 

can to help them; be visible in your community.  

2.    Do you have a good, solid marketing  letter that 

highlights your benefits and moves people to take 

action? This one inexpensive marketing tool is one of 

the most powerful when written properly.  

3.    Do you do personal PR such as speaking and 

writing? Again, these don't take much money but pay 

big dividends. Speak at Rotary, your Chamber of 

Commerce, at business associations and alumni 

groups. Write for your local paper; the trade journal   

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 of your industry, or even for someone else's 

newsletter. You can use the reprints later for 

credibility. 

 4.    Are you mailing to people on your list? This is an 

absolute must. Don't let people forget who you are 

and how you can help them. From two to six times a 

year  send clients and prospects a newsletter or other 

type of keep‐in‐touch mailing. 

 5.    Do you have a Web Site? You should. It doesn't take 

a lot of money to create a web page and even less to 

post it. This is a powerful media that can serve as a 

combination direct mail piece, brochure and 

newsletter. Given the price of entry, it's crazy not to 

have one. 

 What’s The Bottom Line?

    

The bottom line is this:  get the word out and follow up.  IF 

people do not know you exist you will never get any deals. 

Let them (note sellers) know who you are and what you can 

do for them.    

Use attention‐grabbing colors.  No one says you have to use 

plain old white envelopes.  How about fluorescent orange?     

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 Sure it is loud and obnoxious but it will grab the note owner’s 

attention.  

   

As a final thought on developing a marketing mindset it is 

important to do repeat marketing.  Sending a letter just once 

will not get you a deal.  Keep your name in front of the note 

seller and sooner or later you will get the deal.  The cost to 

market is small compared to the profit you will make on just 

one deal.    

“Don’t jump over dollars to save a few pennies!”

                        

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CHAPTER NINE  

       

GETTING SO RICH YOU CAN’T STAND YOURSELF

 

   

Quick‐which rate of return would you rather earn, before 

taxes – 3% or 10%? Most people when asked this question 

will go for the 10%, same as you would.  And so, when a 

person like Jill (our original homeowner) faced with selling 

their property and ending up with cash proceeds that need to 

be reinvested, many home sellers will opt to take back a loan 

from the buyer. We call this a seller‐take‐back.  Unless they 

need it for a down payment on a new home, sellers today are 

better off not receiving cash on a sale.  Add to this benefit the 

advantage of legally deferring taxes through the installment 

rules, and you can begin to see the wisdom in a seller lending 

their buyer the money to buy their property.  

   

Let’s say your house, originally purchased for $75,000, is 

worth about $125,000 today (regardless of the timeframe in 

which this increase occurred).  How much equity can you  

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 borrow? Well, if you said virtually anything, you’re probably 

wrong, because the answer is “it depends”.  One bank will 

only lend you money if your personal finances allow it, while 

another lender may lend up to the house’s current fair 

market value.  Still another bank or private investor may lend 

as much as 125% of the value of the home.  This is essentially 

lending you more money than what your home is worth, 

thereby leaving a portion of the banks investment (25%) 

unsecured.  

   

I am going to focus on reinvesting profits in this section 

but be aware this is not the only way to generate a profit. 

Our initial efforts are going to focus on notes created by 

sellers, or seller‐take‐backs so it is important to understand 

reasons sellers may want to take back a note for another 

person.  

1.    Hold the note for monthly income  

2.    Use it to buy more property  

3.    Pledge as collateral for another bank loan  

4.    Discount the value of the note for immediate cash  

   

For each new seller there is a new seller‐take‐back that was 

created to meet the needs of both the buyer and the seller.  

   

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 Keep in mind that it does not require money‐to‐make‐ 

money.  You can make thousands of dollars per month even if 

you have no money.   If you have money to invest you are 

about to learn how to make exceptional yields on your 

investments while having your investments completely 

secured?  

   

You know you will never make any money working for 

someone else.  Today you can’t even count on job security or 

a good pension.  Owning your own business is one of the 

smartest things you can do‐for yourself, for your family, for 

you comfort and security‐today and tomorrow.     

Have you ever wondered what it would be like to walk out to your mailbox and find money there day after day?

 How would you like to make so much money that you

would not know what to do with it all? Sounds great doesn’t it. Well it is entirely possible if you stick to a very simple plan.

 Following a simple plan on a consistent basis allows you

to make money very quickly. When you combine a simple plan with defaulted mortgages you can exponentially grow your earnings and dramatically reduce the time it takes to reach your goals.

    

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 How does $100,000 sound?

What about $1,000,000?

What about $10,000,000?

What if you had a boring, simple plan that would allow you to reach the above numbers in a very short period of time? Would you follow it?

 The biggest mistake in investing is to do what everyone

else is doing. You can never get ahead if you are doing that, because only a small percentage of people following the herd succeed. Note that the richest people in our country like Bill Gates, Ross Perot, Ted Turner, or Donald Trump became rich by not following the herd. That is why it is critical that you get information that is not known or readily accessible by your competition.

 To know how much money you can predictably make you

need a few easy to understand formulas. Now, I was never a big fan of math, but when it cam to calculating how much I make on a deal, I learned how to get very good with just a few equations. Before we can discuss some of the simple formulas we need to talk about something called the Time Value of Money.

 I see some sophisticated investors incorrectly define Time

Value of Money. The easiest definition of the Time Value of Money is an analogy of what a dollar today would be worth at some point in the future. Another way to look at the Time

 

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 Value of Money is simply the money’s ability to earn a return for you (the investor) over a specific period of time.

 I want to talk about the time value of money since it

directly affects how much you will make on any of your investments. Let’s look at an example of what $1,000 would be worth if you invest the money and do nothing with the investment other than gain interest for the next 30 years. Keep in mind that each year the interest you earn also earns interest (this is called compounding). At the end of 30 years what is your initial $1,000 worth? At 8% you receive $10,935. At 10% interest you receive $19,837. At 15% you would get a whopping $87,540. As you can see by increasing your interest rate just a little bit makes your money grow by huge amounts.

 But, gee MikeRick, I don’t want to wait 30 years I want

cash now. I could wait a couple of years, but certainly not 30 years.

 Well, what if by waiting just 10 years I could show you to

amass a fortune in excess of $1,000,000 (that’s 1 million dollars)? Would you wait? I would and I think you will too.

 To further understand what I am talking about let’s go

back to Steve. Whatever money Steve invests today he expects to get some kind of return in the future. Steve invests his money today put pays less that the full value of the defaulted mortgage because Steve has to wait for the mortgage to pay off. The longer Steve expects to wait for the defaulted mortgage to pay off, the less Steve will pay for the defaulted paper.

 

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 But why must Steve pay less for the defaulted paper.

Let’s look at it this way. Do you remember the story about the 10 and $20 bill? If I offered to give you a $10 bill or a $20 bill free, you would obviously choose the $20 bill. If however, I offered you the same choice except that you had to wait 15 years to get the $20 bill you would probably take the $10 rather than wait 15 years for the $20. Almost everyone would. The idea behind this example is that the $10 is worth more today than it is sometime in the future. It stands to reason then that the mortgage payments that you must collect on the mortgages that you buy in the future are worth less than face value. Add to that the fact that Jack (the homeowner) has stopped making the payments altogether you can see that we must discount the value of the note if Jill (the person receiving the payments or mortgagor) wants all the cash now, in today’s dollars. Since Jill needs cash she is willing to take less than what is owed so that she can get a lump sum that she can now invest somewhere else.

 The discounts you receive are what will make you rich.

So let’s see how we can make some money with this.

 To make this kind of money requires some huge returns.

Obtaining a large discount on a defaulted mortgage is what provides you this great rate of return on your or your investor’s money.

 I was having a conversation with a few associates at a

party and everyone was trying to “one-up” the other person (means they want their story to be better than the other persons story). The conversation eventually turned to money and what

  

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 are some good areas to invest. Most people were talking about the stock market and how much money they lost. Others were talking about savings bonds or bank certificates of deposit (CD’s). Everyone was so exciting about how much money they made on one deal but really sad when they talked about the three deals that cost them money. Overall most of the people were in a negative financial position. They had all lost money. If they made money they were barely keeping up with the cost of inflation. I was standing off to the side drinking a coke and smiling. Amy leaned over and asked me what was so funny? I told her that I could care less what the stock market does or whether interest rates are up or down because I like to double my money every year regardless of what happens. Well, Amy got this funny look on her face that said, “yeah, right, sure you do”. She said OK I’ll bite. How do you double your money every year regardless of how the market does. I said it’s pretty easy. All you really have to understand is the Rule of 72.

 I asked Amy, how much of a rate of return do you need in

order to get so rich that you can’t stand yourself? Amy started laughing and said “heck, I would be happy with 6% on my money”. I told Amy, and by now we had everyone listening in on the conversation, that to calculate how long it is going to take her to get rich she will essentially have to double her money many times to reach this goal. I asked Amy how long she thought it would take her to double $1,000 at her 6% interest per year. Not surprisingly, she said she did not know. I said let me give you a very simple rule that you can use to calculate how long it takes to double your money. We use what is called “The Rule of 72”.

  

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Rule Of 72 Is The Golden Rule  

 One of the easiest formulas that should keep in your

toolbox of moneymaking calculations is a formula called the Rule of 72. The Rule of 72 enables you to easily see how fast your money will double in value. By double, I mean make 100% return on your money. Another way of saying this is how fast can I turn a $1,000 investment into $2,000. The nice part about what I am going to show you is that anyone can use this rule.

 Many people want a guarantee on how much money they

can make. How much can you make? Truthfully, I don’t know how much you will make because I don’t know anything about you. Some of the people I’ve taught make less than $1,000 extra dollars per month. They choose to have it that way because they don’t want to put in more than an hour or two each month. They’re happy with an easy extra $5,000 to $12,000 per year.

 

   

Other  people  I’ve  taught  bring  in  a  few  extra  thousand 

dollars per week.   They quit  their “9  to 5”  jobs  in  just a  few 

months.   I  can’t  say exactly how much you’ll make, but  I do 

know one thing: This business has provided my family and me 

a very comfortable life.   

 Believe  me,   you   can  do   the   same   thing   I’ve   done. 

There’s  nothing  special  about me  or  the  other  people  I’ve  

  

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 taught   this  method.  I’m  not  a   financial  wizard  by   any 

means… and you don’t need to be one either.  

   

After  applying what  you have  learned  in  this book, you 

could  easily  pocket  an  extra  $1,000,  $5,000,  even  $10,000 

each month.   That  translates  to  $50,000,  $60,000,  or  even 

$100,000 per year!  

   

Let’  see  some  possibilities  of what  you make  from  your efforts.   There  is a  little known  rule called  the Rule of 72.   It has been my experience  that not many  investors understand what it means.  The ones I have found who understand it the best  are  people  involved  in  real  estate.      They  realize  that compounding your money  is  the name of  the game and  real estate  is  the best way  to accomplish  it.   Albert Einstein once commented  that  compound  interest  is  one  of  the  most powerful  forces  on  earth.    How  does  it work?    It  is  simply earning interest on your interest, as well as your principle. 

 The Rule of 72 is a fast and easy way to calculate how

long it takes an amount of money to double depending on your rate of interest. Let’s go back to Amy at the party. I asked Amy for a sheet of paper and someone else gave me a pen. This is what I drew on the paper:

 72

Rule of 72 = Current Interest Rate On Your Money

 = Number of Years To Double

Your Money

 Here is how it works I said:

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 Divide the whole number of the interest rate or rate of

return into 72. The result is how long it takes for that amount to double in value.

 For example, if you wanted to find out how long it would

take $1,000 to double if you could earn a 6% return you divide 72 by 6. This result is 12.

 

 I explained to Amy and everyone else that this means it

would take 12 years for the $1,000 to double at 6% per year. That’s a long time for my money to double in value I said. I prefer to have my money double in value every year. It is not unreasonable to make a double digit or even a triple digit return on your investments with defaulted mortgages. This comment opened up a whole can of worms where the first question was “what are defaulted mortgages”? I went through the basics of defaulted mortgages and finished with saying the key ingredient is investing in the right areas. Investing where everyone else invests is not going to help you achieve your goals. Amy was nodding her head now as I kept talking.

 I explained that defaulted paper investors figure their rate

of return before buying a note and will usually want at least a 30% return on their investment. I literally heard a few gasps from the crowd that was gathered listening to me. I could easily see the enthusiasm building in their facial expressions as they realized they could get out of the trap of working to make someone else rich. I heard one person say “boy I wish I was making 30% a year, I would actually be able to retire. I said 30% is not an unreasonable expectation. This type of

 

   

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 return is common by investing in defaulted notes and mortgages.

 Bill, who was standing in the back of the group said

“MikeRick this all sounds great and I want to make the same returns as other delinquent paper investors, but to be frank with you I was laid off from my job last year and I don’t have any money to invest. Is there anything I can do?” I said Bill the best part of what I am talking about is that you don’t even have to have any money to get started. Several people in the group raised their eyebrows in excitement. “How Bill said?” Bill, do you remember when I mentioned that defaulted paper investors like to make at least a 30% return on their paper investments? “Yes”, he said. Well what if you found a defaulted paper deal do you think the investor might be willing to buy it. “Yeah, I suppose he would”, said Bill. Do you think the investor might pay you a finder’s fee for finding the defaulted deal for him? “Maybe”, said Bill, “but how much will he pay”? Let me give you an example, I said.

 Let’s say Bill, you or Amy do a  little  research at  the  local 

courthouse and  locate a $70,000 mortgage  in default  that  is owned by  a  lady named  Jill.   Since  you  found  the mortgage you  contact  Jill  and  find  out  that  she  is  willing  to  sell  the mortgage.      You  get  some  basic  information  about  the mortgage  such  as  the  amount,  interest  rate,  payment schedule,  information  on  Jack,  and  information  about  the property  such  as  type of  house, number of beds  and  baths, debt  on  the  property  and  approximate  value  of  the  home, etc.       You  then  place  an  ad   in  the   local  newspaper  for investors who want an 18%  return or better on their money. You  get  a   couple  of   calls  and  explain   that   you  have   a 

  

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 mortgage that  is  in default where the owner of the mortgage wants  to  sell  the  defaulted  mortgage.        You  give  the information  about  the  mortgage  and  the  property  to  the investor so the investor can give you a quote on how much he would pay  for  this non‐paying mortgage.     If  you  (Bill)  knew the  investor would offer $40,000  for  the defaulted mortgage you now have a deal  in hand.   You  call  Jill up on  the phone and say “Jill  I went over the numbers with my partner (that’s your  investor) and  the best we can do  is $35,000”.  Once  Jill accepts  the $35,000 you  (Bill)  calls  the  investor back up and you proceed to closing.  At the closing  table  the  investor will cut two checks.  One to Jill for the $35,000 and one check to Bill for $5,000.  The $5,000 is the difference between what Jill agreed to accept for the purchase of the mortgage  ($35,000) and  what  Bill  was  offered  by  the  investor  ($40,000).    The $5,000  is  pure  profit  for  you  Bill without  having  to  buy  the mortgage or deal with  the homeowner  in any way.   Bill, you walk  away with  five  grand  and move  on  to  your  next  deal. Not bad for a few phone calls and a little research. 

  

 After  I  finished  with  the  example  everyone  was  very 

quite.  I asked what’s wrong?  Amy said, “Mike if I understand you  correctly  this means we will never have  to worry  about having money to  invest or even using any of our own money to  buy  defaulted mortgages.    And with  the  kinds  of  returns available  we  will  never  have  a  lack  of  investors.      These defaulted paper deals bring the  investors to us not the other way around.” 

  

 You got it, I said. 

 

  

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Ok everyone let’s look at another example. I pulled the paper back out and went over another example. If I am making a 30% return on my investment per year, how long will it take for me to double my money? Take 72 and divide it by the rate of interest you will earn (30%).

 72 / 30 = 2.4.

 

 At 30% it would take just 29 (equals 2.4 years) months

for that money to double.

 Think about what I just said. Instead of $2,000 at the end

of 12 years like the person investing at 6%, your value over 12 years at 30% would make your money worth not $2,000 but $16,000 for the same 12 year time period! You make and additional $14,000 more than the person who invested at six percent. This is why knowledge is so important I said. Knowing other places to invest (other than where everyone else invests their money) your money yields you the greatest rewards.

 As I saw the concerned looks on everyone face, I asked

what’s wrong? The common answer was that they never knew they could invest in defaulted paper to get such great yields. They were also upset their accountants and stockbrokers did not tell them about this investment vehicle. I said, don’t blame you accountants or stockbrokers; it’s not their fault. I bet if you asked them if they know anything about defaulted mortgages they would not have a clue about

 

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 what they were or what you could do with a defaulted mortgage.

 People who invest money in CD's today at 2%-3% will

see their money double in just over twenty years. The problem with putting your money in the bank these days at 2% - 3% interest is that the interest the bank pays you does not even keep up with the cost of inflation. Historically, inflation has increased around 3.5% per year. Well if you are only making 3% at the bank at the end of a year you would be behind by .5% (3.5% inflation rate – 3% savings rate). Not only that but at the end of the year you would have to pay taxes on the 3% you made from the back. Unless you find another m=way to make more money you will always lose if all you do is put your money in the bank.

 Imagine investing your money or an investor’s money.

The person investing $10,000 at 30% would have realized over $11,242,132 after twenty years. All thanks to the power of compounding. Compounding is truly a powerful weapon to have in your arsenal of financial tools.

 Let’s say I want to invest $10,000 of my money in a

$30,000 defaulted mortgage. How long will it take to double my money? Let’s go through it. Assume our rate of return is 30% since we only paid $10,000 for the defaulted mortgage. If we use our original formula of 72 divided by our rate of return of 30% we get 2.4 years.

 You have tremendous leverage through real estate and it

gives high rates of compounding if you structure the deals  

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 properly. Only on a few occasions have I purchased a note that gave me less than a 30% return for the money invested. One deal I did was over 1,000%. If you can find a better way to compound your money with as little risk as real estate notes, call me. My bet is I won't have any calls.

 I knew I had Amy’s and everyone else’s attention. What

would happen if you could double your money every year would you do it? Some of the people immediately nodded their heads; others took a more cautious approach and said “maybe”.

 OK. Then what rate of interest do you think you would

need? What if we took 72 and divided it by 72, what would we get? The answer is 1. We would double our money each year if we could make 72%. Investing in a defaulted mortgage could easily earn you 72% on your money. What if you only bought one defaulted mortgage each year got paid off and then reinvested that money the next year. Essentially doubling your money every year for 15 years. How much would you have? Amy wasn’t sure and asked me to go through the math. I drew the chart below to illustrate what I am talking about. You start out at year zero with $1,000. You double your money so next year you have $2,000 to invest. You double your money again so that at the end of year two you have $4,000 to reinvest, then $8,000, then $16,000 and so on for 15 years. You would cross the $1,000,000 dollar threshold in just 10 years. At the end of 15 years you would have a whopping $33,000,000.

     

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 Amy scratched her head and said, “I can see making the

$64,000 or even the $128,000 but what do I have to do to make the rest”. Easy I said. You can definitely make these returns on your money. You need to be aware that as you make more and more money each year you have to buy more defaulted mortgages or the mortgages that you buy need to be in larger amounts. Additionally, you would need to make exactly 72% each year. Keep in mind that as you make more and more money you will be able to hire staff to handle most of the paperwork and research for you. You will be able to sit back and watch what you have created continue to grow every year. Does creating a company to do all of the work intimidate you? Don’t let it worry you. As you do more and more deals they become easier. You experiences grow and so does your confidence. Over time, you can start small; you will find that having staff specialize in processing the defaulted paper deals that are brought to you and your company allows you to focus on the big picture. The big picture can be many things for different people. You may be thinking about buying another house or car. Possibly you are thinking about paying for your children’s college education. I recently did an evaluation of what it would cost to have my son and daughter go to a middle level college. The cost? $250,000 for room, board, and tuition for just four years. So for both of my kids I need to come up with $500,000. That’s a lot of money. How do I pay for it? With defaulted paper! Can I have my kids, while in school, look for defaulted paper in their area where they are going to school? Sure. Will buying some of those defaulted paper deals help pay for their expense at the time they are in school. You bet? Bottom line is defaulted paper can give

 

   

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 everyone the opportunity to do things they normally could not afford to do.

 Let’s get back to the party. Amy, said “Is this realistic

for me to be able to do, I mean that’s a lot of money, I could retire”? Yes, I said the numbers are large and they assume a few things. Such as making a consistent 72 percent each year and reinvesting all of your profits each year. What I am trying to point out is that all you need to do is one deal each year and you can make a tremendous amount of money. Defaulted paper affords you the ability to pick and choose your deals. There is so much delinquent paper available, and not many buyers, that you can choose only the best of the best deals for your investments.

 Amy still had this puzzled look on her face. Amy, what’s

wrong I asked. I am trying to think of where I can come up with some money to invest in defaulted paper, she said. I asked here how much she had in her stock account. She said her stock account was down almost 50% and that if she pulled her money out she would incur penalties. I thought about what she said for a moment. A giant light bulb went off in my head and I asked Amy if she had an IRA? She said yeah, why? How much money do you have in your IRA I asked. About $6,000 she said. Amy, I said you’re in luck. You have all the money you need to get started right now. You can use the money in your IRA to buy defaulted mortgages. Work on behalf of your IRA to get the mortgage either brought current or paid off. When the defaulted mortgage pays off you have all of the full value of the defaulted mortgage deposited into you IRA where you do not have to pay any taxes until you

  

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 take the money out. You could take that $6,000 and turn it into $12,000 or even $18,000 in less than a year. Then you do it again doubling your money each year.

 I saw this far away look in Amy’s eyes and asked her

what she was thinking? I’m thinking about all the money I can make and how I will be able to have enough money to retire and money left over to give to my kids, she said. Amy, you’re on the right track I said, and everyone else here tonight at this party can do the dame thing.

 Just then a remarkable thing happened. John, who was

standing at the back of the group said: “MikeRick I don’t know if I have all of the time to find these defaulted mortgages. If I give you the money can you help me do some of these deals?” My friends, this was the start to a very beautiful relationship. I now had investors who would be willing to put up all of the money to buy the defaulted paper deals that I found. I would do the work, they would put up all of the money, and we would share the profits 50-50. I now had a way to buy as many defaulted paper deals as I wanted.

 Looking at the previous chart do you think it would be

difficult to reinvest your profits after year 9? As you make more and more money it does get harder to reinvest all of the money. Investing at the larger level requires more effort and possibly larger deals. You could even buy defaulted mortgages on commercial property. This is where you can find large mortgages that you can purchase for pennies on the dollar.

 

   

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Year  Amount of Money 

0  $1,000 

1  $2,000 

2  $4,000 

3  $8,000 

4  $16,000 

5  $32,000 

6  $64,000 

7  $128,000 

8  $256,000 

9  $512,000 

10  $1,024,000 

11  $2,048,000 

12  $4,096,000 

13  $8,192,000 

14  $16,384,000 Page 22

15  $32,768,000 

 What if you want to get started right now, but you don’t

even have $1,000 to get started. What could you do? You could find other investors to flip your defaulted paper deals

too or approach some friends on family about investing their IRA money. What else could you do? How about if I help you get started?

 Let’s say you found

two deals and flipped them to Heartview Financial for us to purchase. On each deal you made a solid fee of $5,000. Now you have the money ($5,000 x 2 deals = $10,000) to start buying deals for your own portfolio. You have $10,000 in seed capital to get started on your road to financial success.

 Let’s  bring  Steve  back 

into   the   picture.      Steve over  the  next  year  does  a couple of deals on his own. He   has   saved   up   $40,000 (or  can borrow  the balance he  needs).  We  have  a student  named  Steve  (this 

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 is   you)   who   found   out   about   the   defaulted   mortgage ($70,000 mortgage owned by  Jill)  and  contacted  Jill directly. Steve contacts  Jill and offers her $40,000  for the note.   Keep in   mind   that   the   normal   range   for   buying   defaulted mortgages  is around 20  cents  to 50  cents on  the dollar.   Jill now has a lump some of $40,000 that she can spend or invest any way  she  likes.   You  have  a note  that  you must work  to bring  current  and make  it  a  paying  note  again  or  have  the note   pay   off   through   sale   of   the   property   or   through refinance of the defaulted mortgage. 

 It turns out that Steve, like Heartview, really likes the

Deed in Lieu of Foreclosure method. So Steve contacts Jack (the homeowner who is not making payments on the $70,000 mortgage) to see if there is a way to resolve the situation without having to foreclose on Jack. It turns out that Jack lost his job and has no immediate prospects for getting a new job. He has already used all of his savings to cover all of his other bills. Jack knows he is going to lose the house to foreclosure. Steve offers Jack a way out of foreclosure and the damage it will do to his credit report. Jack, in an effort to preserve his credit rating and any additional fees and expenses decides he just wants out of the house anyway he can. Jack (homeowner) signs a Deed In Lieu of Foreclosure to Steve (Steve bought the defaulted note from Jill for $40,000; a tremendous discount). A Deed In Lieu of Foreclosure is nothing more than Jack signing the Deed to his house over to Steve. By signing over the Deed Jack avoids foreclosure of the house. Another piece of this puzzle is that the house has a fair market value (FMV) of $100,000. Steve accepts the Deed In Lieu of Foreclosure and now owns the house.

  

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 Steve can now sell the property at full value. If Jack’s

house is worth $100,000 and there is a $70,000 first mortgage (this is the note that Steve bought from Jill for $40,000) there is $30,000 worth of equity in the property above the amount of the debt ($100,000 - $70,000 = $30,000 equity) on the property. But wait. Steve did not pay $70,000 for the defaulted note he only paid $40,000. So how much equity is really in the property? $100,000 - $40,000 ($40,000 note purchase or Steve’s investment) equals an equity position of $60,000. On the surface it looked like the equity in the property was only $30,000 ($100,000 property value - $70,000 amount of the mortgage). In reality there is $60,000 in equity ($100,000 property value - $40,000 invested by Steve). Steve just increased the equity on the property to $60,000 ($100,000 - $40,000) since Steve only paid $40,000 for the defaulted mortgage.

 When Steve sells the house (assuming he sells it at the full

value of $100,000) the additional profit over the debt ($100,000 value - $70,000 mortgage) that Steve is owed is $30,000. So what are the benefits to Steve and what did Steve make total on this deal?

 1. Steve did not have to go through the time and

expense of foreclosure. 2. Steve paid $40,000 for the mortgage but received

$100,000 as payoff on the mortgage when the property was sold. Remember Steve is able to keep all of the profit above the original $70,000 he was owed on the defaulted mortgage. His additional profit is $30,000.

  

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 3. Total profit to Steve is $30,000 ($100,000 value -

$70,000 mortgage) plus $30,000 ($70,000 original mortgage amount - $40,000 what Steve paid for the defaulted mortgage) or $60,000 profit from an initial investment of only $40,000. Steve made over a 100% profit on this deal in a matter of months.

 

 Is this a good deal for Steve? You bet. Now imagine

doing one or two of these deals each year. If Steve borrowed the $40,000 from a friend or friend’s retirement account (see chapter on tax-free investing) Steve would need to pay the money back to his friend, plus interest. For example, if Steve borrows the money from Henry, Steve now has $40,000 with which to buy the defaulted mortgage from Jill. Steve worked out a deal with Henry so that Steve would pay Henry back 15% interest on his money. The catch? Steve would pay it back at the end of a year. This way Steve does not have any monthly out-of-pocket carrying costs on the money he borrowed from Henry. At the end of a year Steve would owe Henry $40,000 plus $6,000 in interest for a total of $46,000.

 Now, let’s look at the profit after everything is paid off.

Henry gets his $46,000 (principal plus interest). Steve received $100,000 when the property was sold. Subtracting out the payback to Henry ($100,000-$46,000) leaves Steve with a very nice profit of $54,000. On a deal where he had no money out of his own pocket. Steve has an infinite rate of return on his investment since he used none of his own money. Steve essentially created money out of thin air by using his imagination, being creative and having the right knowledge.

 

   

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 Now Steve has the ability to take his $54,000 in profit and

reinvest it into another deal or possibly several deals all at the same time. Each time he reinvests the money he is able to make it grow by using the simple concept of defaulted paper.

    

$10,000 Turns Into $350,000,000  

 Let’s look at another example. You purchase a $30,000

defaulted note, gaining interest at 10% for 30 years, for $10,000 or almost 30% of its face value. After you work with the homeowner to bring the note current you convince the homeowner to refinance the note. What is the incentive? How about you give the homeowner a $5,000 discount just to encourage them to refinance their house. Why $5,000? Why not? If you can get the homeowner to refinance the defaulted mortgage you now get all of that cash in your pocket that you can spend any way you want.

 What would happen if you simply reinvested the payoff

of the notes each year into more notes and did this process for 10 years?

 

 Look at the table below. By taking the $10,000 you

made by referring two deals to Heartview (or by doing them yourself or with a money partner) you now have the startup capital to get started. Starting with just $10,000 you buy a defaulted mortgage worth $30,000. You contact the homeowner and give them an incentive to refinance over the next year and save $5,000 in principal. The reduced payoff to

  

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 you is $25,000. So on the next deal or deals you have $25,000 to invest instead of the $10,000. What size note can you purchase now? Assuming you don’t spend any of the money and reinvest all of the $25,000 you are able to invest in more defaulted mortgages at essentially the same discounts. This means your next note purchase is for approximately $90,000 worth of defaulted paper. You then repeat the process each year for a period of 10 years. At the end of the 10 years how much money do you have? A whole bunch!

                                  

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Year  1 

Invested Amount 

$10,000 

Fair Market Value (FMV) $30,000 

  

Reduced Payoff  $25,000 

  2 

  

$25,000  $90,000 

  

Reduced Payoff  $80,000 

  3 

  

$80,000  $240,000 

  

Reduced Payoff  $220,000 

  4 

  

$220,000  $700,000 

  

Reduced Payoff  $650,000 

  5 

  

$650,000  $2,000,000 

  

Reduced Payoff  $1,900,000 

  6 

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   Reduced Payoff  $5,500,000 

  7 

  

$5,500,000  $16,000,000 

  

Reduced Payoff  $15,000,000 

  8 

  

$15,000,000  $45,000,000 

  

Reduced Payoff  $40,000,000 

  9 

  

$40,000,000  $120,000,000

  

Reduced Payoff  $110,000,000

  10 

  

$110,000,000  $350,000,000

                

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 By repeating this process just once a year and reinvesting

your money each year (without spending any of it of course) you total profit at the end of 10 years can be a whopping $350,000,000. That’s right 350 million dollars in 10 years. I think that justifies a little reinvestment of your profits. I don’t know about you but I call 350 million pretty stinking rich.

 My  friends,  if  the  above  chart  does  not  get  your  heart 

pumping  a  hundred  gallons  a minute  or make  you  think  of what  you  could  do  with  all  that  cash  (go  ahead  and  think about  it  for  a minute‐does  a  boat  in  the  Caribbean  sound good?      What  about  a  Swiss  chalet?      How  about  several vacation homes)?  Then we need to get you to the doctor for an immediate checkup.  Just kidding of course.  I am sure this excites  you  as much  as  it  does me.   Don’t  let  the  numbers scare you.   Will you make the kinds of money outlined  in the 

above chart?   Possibly.  But, remember  just 1/10th  of what  is outlined above is still $30,000,000.  Would you be happy with even $100,000?  As you can see it does not take all that much effort to make a whole lot of money with defaulted paper. 

  

 People  often  come  up  to me  at  one  of my workshops 

and ask several of the same questions:     

1.    Doesn’t it take money to make money?  

2.    Isn’t investing risky?  

3.    How can you get such high returns without risk?    

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 4.   What if the stock market crashes? 

 5.   What if we have a recession? 

 

   

You  can  learn  to  take  control  of  your  financial  future  if 

you have the desire.  If someone says, “you can’t do that,” it’s 

not  because  you  can’t  do  it  is  because  they  cannot  do  it 

themselves.      Remember;  always  consider  your  source  of 

advice.  

   

In today’s society people want the greatest return with as 

little  risk  as possible.    Some of  the wealthiest people  in  the 

world got  rich because  they  followed a  simple  financial plan. 

Saying  to  family members  and  to  other  investors  that  you 

invest  in  defaulted  paper  is  not  as  glamorous  as  saying  you 

own  shares  in  Yahoo, Microsoft, General Motors or another 

big company.  Knowing what kind of returns you are going to 

make over  a  specified  time  period  is better  than betting on 

the  next  IPO  (Initial  Public  Offering.)    You might  be  asking 

yourself   “if   this   is   such   a   great   investment   how   come 

everyone  is not doing  it?”  While this  is an excellent question 

consider  that most  people  reading  this  book  did  not  know 

about this investment vehicle before they bought this book.   

 Some  of  the  people  who  read  this  book  would  be 

interested   in   the   ideas  presented  but  will  not  have   the  

 

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 financial resources to get started.  Simply by finding defaulted 

mortgages  that  Heartview  Financial  purchases  can  provide 

you with the start‐up capital you need to get going.         

 The best methods of investing may not 

be the most glamorous  

‐  Anonymous  

                           

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 What  if  you  could do everything  I  just  talked about, but 

do  it  100%  TAX‐FREE?    What  if  the  IRS  pays  you  to make money?  Would you be  interested?   If you said yes  to either question, then you will love the next chapter. 

 

                                         

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CHAPTER TEN  

                                            

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YOU’RE NOT STUPID      

Short & Long Term Wealth      

Please do not be insulted by the title of this chapter.  I 

you have made it this far you are obliviously very serious 

about changing your financial future. Most people think only 

about making a quick buck.  They will fall into the old try of 

trying to get a whole lot of something for nothing.  What I am 

trying to do in this book is show you how to create 

tremendous wealth.  The way you create tremendous wealth 

is by building assets and reducing liabilities.  An asset is 

something that makes you money (such as a defaulted 

mortgage that you purchase).  A liability is something that 

takes money out of your pocket such as a loan.  The goal is to 

have more assets putting money into your pocket than 

liabilities that take money out of your pocket.  Lets take a 

look a t wealth creation and see how you can become part of 

the elite group in America called “rich”.  

   

I am going to cover two time frames for creating wealth:  

• Short Term  

  

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 • Long Term 

 

  

Forget Saving Money... for NOW.  

 I know! I know...

 

 My recommendation flies in the face of conventional wisdom. But all you have to do to test its validity is look at your own savings account... or at your brother-in-laws'.

 Conventional Wisdom Isn't Working... According to Business Week, the personal savings rate for the average American, for the year 2000, was below zero percent.

 ZERO... nada... zilch!

 

 The truth of the matter is... trying to save money is like dieting. It's painful! And only a tiny number of those who go on a diet, stay with it long enough to see any benefit. It's the same with the conventional approach to building wealth by saving money.

 And most people are already operating in the red, so saving part of what's already-not-enough is almost impossible.

 There's a much more realistic approach... It's simple, and totally painless! Why not just make more money? Then save a portion of your profits, and reward yourself with the rest!

    

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 You're probably going to say something like -"I'm already paddling as fast as I can, and I'm just barely keeping my head above water now!" “Just how do you expect me to do more?”

 Not to worry... As you have already seen in this book, the concept of defaulted paper allows you to capitalize on your efforts and exceed your normal income and it is a program that can make money for you while you work at your JOB... or sleep... or fish. By exceeding your normal income you are able to actually save money and then reinvest your profits.

    

If You Want To Grow Your Net‐Worth, Then Your J‐O‐B Is 

Probably Your Biggest Obstacle  

 If you're on a salary, or an hourly wage, and that's the ONLY 

means you have to make money, then your j‐o‐b is standing 

between you and the ability to grow your net worth.  There is 

an old phrase the states JOB stands for “Just Over Broke”.  I 

have been at that point. Working paycheck‐to‐paycheck and 

still trying to make ends meet.  It is a lot of work.  Using the 

techniques in this book you can turn your efforts and 

investments into assets that pay you money around the clock.  

 If you want financial independence... while you're young 

enough to enjoy it, then it's imperative that you get away 

from the model of exchanging a unit of time for a unit of  

  

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 money. For obvious reasons, this places an impenetrable 

ceiling on your earnings potential. No one ever got rich 

working a J‐O‐B.     

What you need is a good "Passive  Income Money Machine"!  

 A PIMM... Passive  Income Money Machine,  is a business that 

can be automated... and once it's up and running... pretty 

much continues to run on it's own. PIMMS operate on 

system‐power, rather than people‐power.  

 PIMM’s have made Paul McCartney, Stephen King, and Garth 

Brooks wealthy men. Bill Gates... the richest man in the 

world, uses this business model.  

 Defaulted paper provides you with tremendous leverage of 

any money that you invest.  Your investments yield above 

average rates of return, which in turn provides you in the 

beginning with start‐up capital and then finally, and Income 

Generating Money Machine. 

 If You Want To Get Ahead In This World... You Need LEVERAGE!

 

 This word is the foundation concept upon which all personal wealth is built. It comes from the noun "lever"... a tool that you use to move objects much too heavy to move by brute force.

  

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 You can leverage TIME and you can leverage MONEY.

 

 How important is leveraging money to your financial plan? It's the difference between ADDITION & SUBTRACTION. And that little difference... makes a HUGE difference.

 For example...

 

 Here's a 10-ADDITION progression:

  

1+1=2 2+1=3 3+1=4 4+1=5 5+1=6  

6+1=7 7+1=8 8+1=9 9+1=10 10+1=11    

Now let's look at a 10-MULTIPLICATION progression:   

1x2=2 2x2=4 3x2=6 4x2=8 5x2=10  

6x2=12 7x2=14 8x2=16 9x2=18 10x2=20    

Same number of progressions... using the same numbers. But almost twice the total!

 

            

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 Here's another example:

 

 Put $100 a month in a shoebox for 30 years and you'll have $36,000. Put that same $100 a month into a 30 year investment that pays 10% compound interest and you'll

accumulate over $308,000.  

Year   Amount of Money  

  

WEALTH

Almost ten times as much.  

 SHORT TERM

 You'll never create a large net worth until you learn how to leverage your money. But it's also critical that you leverage your TIME.

 Until you get away from the trap of exchanging a unit of time for a unit of money as your only means of making money, you'll never accumulate any net-worth.

 Getting paid again and again... for work you do one time, is the foundation on which the PIMM concept rests.

 Looking at the chart do you think it would be difficult to

reinvest your profits after year 9? As you make more and more money it does get harder to reinvest all of the money. Investing at the larger level requires more effort and possibly larger deals. You could even buy defaulted mortgages on commercial property. This is where you can find large mortgages that you can purchase for pennies on the dollar.

    

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0  $1,000 

1  $2,000 

2  $4,000 

3  $8,000 

4  $16,000 

5  $32,000 

6  $64,000 

7  $128,000 

8  $256,000 

9  $512,000 

10  $1,024,000 

11  $2,048,000 

12  $4,096,000 

13  $8,192,000 

14  $16,384,000 

15  $32,768,000 

 What if you want to

get started right now, but you don’t even have $1,000 to get started. What could you do? You could find other investors to flip your defaulted paper deals too or approach some friends on family about investing their IRA money. What else could you do? How about if I help you get started?

 Let’s say you found

two deals and flipped them to Heartview Financial for us to purchase. On each deal you made a solid fee of $5,000. Now you have the money ($5,000 x 2 deals = $10,000) to start buying deals for your own portfolio. You have $10,000 in seed capital to get started on your road to financial success.

 In  today’s  society 

people  want  the  greatest 

return with  as  little  risk  as 

possible.  Some of the wealthiest people in the world got rich   

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 because  they  followed  a  simple  financial  plan.    Saying  to 

family  members  and  to  other  investors  that  you  invest  in 

defaulted paper is not as glamorous as saying you own shares 

in Yahoo, Microsoft, General Motors or another big company. 

Knowing what kind of  returns you are going  to make over a 

specified  time period  is  better  than betting on  the next  IPO 

(Initial Public Offering.)   You might be asking yourself “if  this 

is  such a  great  investment how  come  everyone  is not doing 

it?”    While  this  is  an  excellent  question  consider  that most 

people reading this book did not know about this  investment 

vehicle before they bought this book.  

   

Some  of  the  people  who  read  this  book  would  be 

interested  in  the  ideas  presented  but  will  not  have  the 

financial resources to get started.  Simply by finding defaulted 

mortgages  that  Heartview  Financial  purchases  can  provide 

you with the start‐up capital you need to get going.       

What You Know Will ALWAYS Be More Valuable Than What 

You Have!  

 All of my life I've heard the statement... 

"Take the wealth of the world... divide it evenly among 

everyone, and in 20 years it will be back in the hands of the 

same wealthy few."   

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For some individuals, making money is easy. It's said they 

have a 

Midas touch. (To us, they're just good at creating PIMM’s!)  

 What the average person doesn't understand, is that the 

Midas touch has nothing to do with getting lucky... Or silver 

spoons... Or even hard work. It's a result of understanding 

and consistently applying time‐tested money strategies... 

Strategies that take advantage of the true nature of money.  

 These "Midas Touch" people know that success is more about 

working SMART than it is about working HARD!  

  

Don't Be A Jerk!  

 In the movie, "The Jerk", Steve Martin played a dumb hick who became wealthy because he accidentally invented a device that kept your glasses from sliding down your nose.

 Once his PIMM gained momentum and the money started rolling in, he became the target of every con man in town. The money was coming in by the wheelbarrow, but Steve was managing to keep it spent down.

 Towards the end of the movie, he gets sued because his invention caused users to become permanently cross-eyed. In the end, Steve was broke again... only with the appetite that a really powerful PIMM can create.

 

  

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Pay Yourself First. Take at least half of your newfound income form flipping deals, and pay yourself. Use the money to pay off debts or buy needed times for the family. If you do not pay yourself first, then who will? In the beginning always pay yourself first. Over time as you catch up on your bills start to reinvest your money. Reinvestment is how you create long-term wealth. Reinvestment is the key.

 Here a simple illustration showing you why this is so important... I remember being asked a question:

 

 “What would you rather have: $1,000,000 right now or a penny today and have it double each day for a total of 30 days?”

 I remember saying to myself, well “duh” I want the million dollars. Forget the penny and give me the cash.

 I was surprised to find out I made the wrong choice.

 Let's run those numbers and see what doubling a penny every day for 30 days amounts to?

   

 Day 

 

Accumulated Day Accumulated

   

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 1 

 

.02 16 655.36

2  

.04 17 1310.72

3  

.08 18 2621.44

4  

.16 19 5242.88

5  

.32 20 10,485.76

6  

.64 21 20,971.52

7  

1.28 22 41,943.04

8  

2.56 23 83,886.08

9  

5.12 24 167,772.16

10  

10.24 25 335,544.32

11  

20.48 26 671,088.64

12  

40.96 27 1,342,177.28

13  

81.92 28 2,684,354.56

14  

163.84 29 5,368,709.12

 

  

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 15 

 

327.68 30 10,737,418.24

 

Sometimes you just need to... Let It Ride!  

 Reinvesting your money and having it grow, even when you start with just a penny can yield phenomenal results. Looking at the above chart which would you take now? The $1000,000 up front or a penny dou8bled every day for 30 days.

   

 We would take the penny for 30 days option. I know this is a 

simplified example of reinvesting your profits but it is 

realistic.  Reinvestment is the key to making your money 

grow.     

Long Term Wealth  

 

 

 

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 Reinvesting your profits means creating long-term wealth. Another way of saying this is to have your money work for you rather that you work for money. That is a key ingredient to long-term wealth. Making your money work for you.

 Does your money work for you? 

 According to the Bureau of Labor Statistics, out of 100 people that start working at age 25, by age 65...

• 51% are still working (can't afford to quit)

• 20% depend on Social Security, friends or charity

• 25% are dead

• 4% have enough money to retire  

 This means that 95% of all Americans retire in poverty after working for 45 years!

 In other words, only 4% will actually achieve freedom of choice or financial freedom.

 Bottom Line: Only 4% of people are able to provide for themselves when they retire. Are you currently positioned to become one of the 4%? Only 1% overall are considered to be wealthy.

 Statistics further show that of this one per cent, 74% made their money from running their own business, 10% are professionals, 10% are CEOs of large companies, and the rest achieve wealth from other sources.

  

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The main reason people struggle financially is because they have spent years in school but learned nothing about money. The result is that people learn to work for money but never learn to have money work for them. The rich don't work for money; they have their money work for them.

 This can be achieved through passive income.

I don't believe  in get rich quick or easy money scams.                                   

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 There is no such thing as something for nothing,

especially when it comes to creating your passive income. I am teaching you how to create the ultimate passive income money machine: defaulted paper.

 What Is Passive Income 

 Michael Caine (the actor) said, "The way to become rich

is to have something that makes you money even when you're asleep."

 Passive income is when you work once but continue to

get paid over and over again from work you're no longer doing. Passive income, in most cases is income earned from real estate investments or true businesses owned and operated independent of your personal involvement. Investing in or creating true assets that provide passive income for you is your ticket to wealth. To gain financial freedom you need this cash flow from 'Passive Income'.

 To put it simply, passive income is income that continues

to generate money for you even when you have stopped working. Passive Income is financial freedom with real financial security.

 For example, your rental income is a good source of passive income. Rental income includes payments made by an occupant for the use of property, payments to cancel a lease, advance rent, and any security deposit used as a final payment of rent. If you own a house and you rent it out, you will continue to receive your rental income for as long as you have

 

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 a tenant, regardless of whether you work or not. I don’t particularly like to manage rental property anymore. Instead I like to manage a paper portfolio. A defaulted paper portfolio to be exact. I invest in mortgage and other types of debts that provide me with monthly cash flow, yet I do not have to worry about getting a call in the middle of the night about a clogged toilet.

 Passive Income Investments 

 Financial freedom is not having to rely on a paycheck for

your standard of living. If you are sick, or want to take a vacation, you will still have money coming to you from your investments. This is Passive Income. Passive Income is Freedom. Passive Income is Security.

 The Wealthy Know About The Power Of Passive Income 

 Paul McCartney, Stephen King, and Garth Brooks are

wealthy men because they all understand and use the concept of passive income... they produce a master, then sell millions of copies. Even Bill Gates, the richest man on earth, uses the power of passive income in his primary business model. Do some brainstorming yourself and think how the richest man on Earth create his sources of passive income?

 Why Passive  Income? 

 

The key to becoming wealthy is the ability to convert earned income into passive income and/or portfolio income as quickly as possible. The taxes are highest on earned income. The least taxed income is passive income. That is another

 

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 reason why you want your money working hard for you. The government taxes the income you work hard for more than the income your money works hard for.

 According to the IRS, all mutual fund distributions and

capital gains not related to the active conduct of a trade or business are passive income.

                                     

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 Types of Passive Income 

 

 • Savers earn interest. > Passive Income 

 • Songwriters earn royalties on their songs. > Passive 

Income 

 • Authors earn royalties from their books and tapes. > 

Passive Income 

 • Insurance agents get residual business. > Passive 

Income 

 • Securities agents get residual sales. > Passive  Income 

 • Network marketers get residual commissions. > 

Passive Income 

 • Actors get a piece of the action. > Passive Income 

 • Entrepreneurs get business profits. > Passive Income 

 • Franchisors get franchising fees. > Passive  Income 

 • Investors get dividends, interest and appreciation 

(this is you). > Passive Income 

 • Visual artists get royalties from their creations. > 

Passive Income 

 • Software creators get royalties. > Passive Income 

   

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 • Game designers get royalties. > Passive  Income 

 • Inventors get royalties. > Passive  Income 

 • Partners can get profits. > Passive Income 

 • Mailing list owners get rental fees. > Passive Income 

 • Real estate owners can get cash flow profits. > 

Passive Income 

 • Retired persons can get pensions. > Passive Income 

 • Celebrity endorsers get gross percentage profits. > 

Passive Income 

 • Marketing consultants get % of profit or gross 

revenue. > Passive Income 

 When to start building your Passive  Income? 

 The earlier you start planning and building your passive

income, the earlier you can achieve being financially free. It takes time and effort, especially in the beginning, just like building anything worthwhile does. You build a foundation and gradually build up your passive income from there.

 How can you build your Passive Income? 

 

The cornerstone of all wealth understands the difference between assets and liabilities.

 

   

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 The difference is this:

• Assets put money IN your pocket

• Liabilities take money OUT of your pocket  

  

Liabilities  

A liability is something that takes money out of your pocket." (monthly and continuously) Most people think their home, car, and other possessions are assets. But, the truth is that in most cases those things take money out of your pocket. They cost you money. They don't make you money. Those things are liabilities. They take money OUT of your pocket each month. Assets 

 An asset is something that puts money in your pocket."

(monthly and continuously) When you have more money coming IN from real assets than you have going OUT to pay for liabilities, you will be financially free. This is really all you need to know. If you want to be rich, simply spend your life buying assets. If you want to be poor or middle class, spend your life buying liabilities. It's not knowing the difference that causes most of the financial struggle in the real world."

 Our liabilities are someone else's (usually the bank's)

assets. Most people mistakenly think of their home as their biggest asset. It is an asset - the bank's asset. Our home is usually our biggest liability in that it takes money out of our pocket month after month.

 

    

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 The rich buy assets. The poor only have expenses. The

middle class buy liabilities they think are assets.

 Real assets fall into several different categories:

1) Businesses that do not require your presence; 2) Stocks; 3) Bonds; 4) Mutual Funds; 5) Income-generating real estate; 6) Mortgages/Notes (IOUs); and 7) Royalties from intellectual property (books, music, patents…).

 Most people use their money to buy liabilities whereas the rich use their money to buy assets that pay for their liabilities.

 Start to plant seeds inside your asset column. Start small

and plant seeds. Some grow; some don't.

 Different Types of Income 

 There are three different types of income: Earned Income; Passive Income; and Portfolio Income. You must know what kind of income to work hard for, how to keep it and how to protect it from loss. This is the key to great wealth.

 Earned Income 

 Earned income is income derived from your job. It is linear in nature. You work for an hour and get paid only one time for that one hour's work, and that's it. Your income stops when you stop working.

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The rich don't work for money; they have their money work for them. This is achieved through portfolio income and passive income.

 Portfolio  Income 

 Portfolio income is the income you receive from interest, dividends, royalties and gains you get from investments in paper assets.

 Passive Income Money Machines 

 Passive income is when you work once but continue to get paid over and over again from work you're no longer doing. Passive income, in most cases is income earned from real estate investments or true businesses owned and operated independent of your personal involvement. Investing in or creating true assets that provide passive income for you is your ticket to wealth. To gain financial freedom you need this cash flow from 'Passive Income'.

 You can get Passive Income from investments or

businesses, dividend income, interest on notes receivable, capital gains, trademark payments, rents and royalties.

 But note the definition of a business!

 

 Owning a business that provides passive income means

the business works without you having to be there. You have a business if you can leave it for a year or more and then return to find it more profitable and running better than when you

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 left. But if your business would falter without you then it's more like a 'job' than a business.

 So you can think of earned income as coming from

something you do. Passive income comes from businesses or real estate that works for you. And portfolio income comes from paper assets that work for you. Turing a defaulted mortgage into a current and paying mortgage creates monthly cash flow. If you purchase the defaulted mortgage correctly you have a substantial amount of income versus what it cost you to purchase the defaulted mortgage in the first place.

 Everyone has income, but not everyone maximizes the use of that income. Of the four income patterns, the one to shoot for is that of the rich. And one myth you can dispose of is "It takes money to make money." Regardless of your income you can begin to acquire assets that return an income every year -- passive income that comes in, rain or shine, whether you work or not. This is money working for you, not you working for money.

 Passive Income versus Earned Income 

 

Unlike passive income, earned income or linear income requires that you work for your money. You are basically exchanging your time and effort for money. You get paid when you work. The moment you stop working, you don't get paid.

       

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 Taxes 

 The key to becoming wealthy is the ability to convert

earned income into passive income and/or portfolio income as quickly as possible. The taxes are highest on earned income. The least taxed income is passive income. That is another reason why you want your money working hard for you. The government taxes the income you work hard for more than the income your money works hard for.

 The rich incorporate their assets and are able to: Earn, Spend and Pay Taxes on what is left.

 The poor and middle class work at a job and must: Earn, Pay Taxes and then Spend what is left.

 

 Your right to acquire Passive  Income 

 Wealth and freedom can, and should, be yours. You have

the right to acquire it. The family that is jet setting around the world, teaching their children about art in Paris and about science on the Amazon, eating out whenever they want to, cruising on yachts, hot-air ballooning over wine country, relaxing on tropical beaches, has no more right to all of that than you. You are entitled to all of your dreams.

 So How Do I Know When To Reinvest My Profits?

Let’s take a moment to review a key point. In the beginning don’t reinvest your [profits. Make some money by flipping deals to investors or companies that buy defaulted paper. Heartview is not the only game in town. Once you make some money start to py off some of your bills. Once

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 your bills are paid off it is time to start reinvesting your profits.

  

Look at it this way:  

Pull out and open your checkbook. Look at you balance. Do you have money in the bank? If yes you can invest in defaulted paper deals on your own.

 

If you do not have any money then don’t try to buy any defaulted paper deals. Send the deals instead to Heartview or another investor for a healthy finders fee.

 When you have cash built up from flipping deals to other investors you are now able to build your own portfolio.

 

   

Let’s bring Steve (you) back into the picture.  Steve over the next year does a couple of deals on his own.  He has saved up $40,000 (or can borrow the balance he needs). We have a student named Steve (this is you) who found out about the defaulted mortgage ($70,000 mortgage owned by Jill) and contacted Jill directly.  Steve contacts Jill and offers her $40,000 for the note.  Keep in mind that the normal range for buying defaulted mortgages is around 20 cents to 50 cents on the dollar.  Jill now has a lump some of $40,000 that she can spend or invest any way she likes.  You have a note that you must work to bring current and make it a paying note again or have the note pay off through sale of the property or through refinance of the defaulted mortgage. 

 It turns out that Steve, like Heartview, really likes the

Deed in Lieu of Foreclosure method. So Steve contacts Jack  

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 (the homeowner who is not making payments on the $70,000 mortgage) to see if there is a way to resolve the situation without having to foreclose on Jack. It turns out that Jack lost his job and has no immediate prospects for getting a new job. He has already used all of his savings to cover all of his other bills. Jack knows he is going to lose the house to foreclosure. Steve offers Jack a way out of foreclosure and the damage it will do to his credit report. Jack, in an effort to preserve his credit rating and any additional fees and expenses decides he just wants out of the house anyway he can. Jack (homeowner) signs a Deed In Lieu of Foreclosure to Steve (Steve bought the defaulted note from Jill for $40,000; a tremendous discount). A Deed In Lieu of Foreclosure is nothing more than Jack signing the Deed to his house over to Steve. By signing over the Deed Jack avoids foreclosure of the house. Another piece of this puzzle is that the house has a fair market value (FMV) of $100,000. Steve accepts the Deed In Lieu of Foreclosure and now owns the house.

 Steve can now sell the property at full value. If Jack’s

house is worth $100,000 and there is a $70,000 first mortgage (this is the note that Steve bought from Jill for $40,000) there is $30,000 worth of equity in the property above the amount of the debt ($100,000 - $70,000 = $30,000 equity) on the property. But wait. Steve did not pay $70,000 for the defaulted note he only paid $40,000. So how much equity is really in the property? $100,000 - $40,000 ($40,000 note purchase or Steve’s investment) equals an equity position of $60,000. On the surface it looked like the equity in the property was only $30,000 ($100,000 property value - $70,000 amount of the mortgage). In reality there is $60,000 in equity

  

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 ($100,000 property value - $40,000 invested by Steve). Steve just increased the equity on the property to $60,000 ($100,000 - $40,000) since Steve only paid $40,000 for the defaulted mortgage.

 When Steve sells the house (assuming he sells it at the full

value of $100,000) the additional profit over the debt ($100,000 value - $70,000 mortgage) that Steve is owed is $30,000. So what are the benefits to Steve and what did Steve make total on this deal?

 4. Steve did not have to go through the time and

expense of foreclosure. 5. Steve paid $40,000 for the mortgage but received

$100,000 as payoff on the mortgage when the property was sold. Remember Steve is able to keep all of the profit above the original $70,000 he was owed on the defaulted mortgage. His additional profit is $30,000.

6. Total profit to Steve is $30,000 ($100,000 value - $70,000 mortgage) plus $30,000 ($70,000 original mortgage amount - $40,000 what Steve paid for the defaulted mortgage) or $60,000 profit from an initial investment of only $40,000. Steve made over a 100% profit on this deal in a matter of months.

 

 Is this a good deal for Steve (you)? You bet. Now

imagine doing one or two of these deals each year.  

Now Steve has the ability to take his $60,000 in profit and reinvest it into another deal or possibly several deals all at the

 

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 same time. Each time he reinvests the money he is able to make it grow by using the simple concept of defaulted paper.

                                            

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CHAPTER ELEVEN  

       

THE IRS PAYS YOU TO BUY DEFAULTED PAPER

 

     

As  you  saw  in  the  previous  chapter  reinvesting  your profits  back  into  more  defaulted  paper  can  be  extremely profitable.    The  numbers  from  the  previous  chapter  don’t’ take  into  account  the  taxes  you  will  need  to  pay  on  your profits.   For  example,  if  you  invested  $10,000  in  a  $30,000 note  and  then  convinced  the  homeowner  to  refinance  his loan, even if you give him an incentive (reduce the payoff by $5,000)  to  refinance  the  defaulted mortgage  you would  still have  to  pay  taxes.    So  from  the  $10,000  initial  investment you received a payoff of $25,000 ($30,000 mortgage ‐ $5,000 cash  incentive  to  refinance).   Your profit  is $15,000  ($25,000 payoff amount ‐ $10,000 investment).  So is your profit really $15,000?    On  the  surface  it  appears  so,  but  what  we  are forgetting  is  that Uncle Sam  (the  IRS) always get  their  share of any money that you make.  Let’s say you are in the 39% tax bracket what would  be  your  tax?    Your  profit was  $15,000 times  the 39% tax equals a  tax payable to the  IRS of $5,850. The paid tax actually reduces your profit to $9,150 instead of $15,000.     Add   the  $9,150   to  our  original   investment  of 

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 $10,000 we now have a  total of $19,150  to  reinvest  instead of  the  $25,000.    So  now  instead  of  being  able  to  purchase approximately  $90,000  worth  of  defaulted  notes  (assuming you purchase your defaulted mortgages at about 30 cents on the  dollar)  we  are  only  able   to  purchase  approximately $57,450.  We can only purchase $57,450  if we use the same percentages  as  the  previous  chapter  where  we  pay approximately  33%  of  the  face  value  of  the  defaulted mortgage.      If  you  remember,  for  a  $30,000  we  will  pay approximately $10,000 or 1/3 of the value.  Well  if we could reinvest  our  payoff,  of  the  $30,000  note,  in  this  case  the payoff  is $25,000  (we gave Jack a $5,000 discount for him to refinance  immediately), after you  take  the  tax out of $5,850 we only have $19,150  left  to  reinvest.  Multiply  the $19,150 by three and you get $57,450.  Going back to the example of purchase $90,000 worth of defaulted mortgages, you give the homeowner an  incentive  to refinance  their property and pay you  off.  The  difference  between  the  $80,000  payoff  (it’s $80,000 instead of $90,0,000 because we gave Jack a $10,000 discount  to  refinance  the property) and $57450  (the amount available  for  purchase  after  taxes  are  taken  out)  is  almost $33,000.   The  reduced purchase amount means our possible future  profit   is  reduced  almost  $33,000.    That’s  a   lot  of money.   All this lost income because the IRS always gets their money.  Or do they? 

  

 Did  you  know  the  IRS  allows  you  to  purchase  defaulted 

mortgages  in your  retirement vehicles?   How do you picture your  retirement?      Will  you  be  sipping  a  cold  drink  while relaxing on  the balcony of  your oceanfront  home,  secure  in the comfort of your  investments with defaulted paper that  is paying  you  above  average   returns  on  your   investments? 

  

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 Perhaps you'll be traveling through Europe while the monthly checks  pile  up  at  home.  Or  maybe  you  see  yourself volunteering  for your  favorite cause. These don’t have  to be dreams. Sooner or  later most of us will  face  the prospect of getting out of bed one morning retired.   It's inevitable, and it will happen sooner than you think. 

  

 Will you have the money to  live your dreams?   If you are 

not sure, read a little further and see how the wealth building strategies  of  Tax  Deferred Growth  or  Tax  Free Growth  can lead to wealth you can't imagine. 

 

   

Besides  looking  for  investment  vehicles  that  provide  us 

with  better  than  average  rates  of  return,  how  do  we  find 

ways  of  quantum  growing  our  investments?    What  if  you 

could make 37% or more on your money each year and do  it 

tax‐deferred or better  yet  tax‐free?   Most people would  say 

yes.      In  this  chapter  you  will  learn  how  to  combine  the 

investment  vehicle  of  buying  defaulted mortgages with  the 

tax  deferral  benefits  of  retirement  plans.   Retirement  plans 

can be  for you, your  spouse,  your  children or grandchildren. 

Money  in  your  retirement  plans  can  also  buy  other  assets 

that you may want like a 2nd or 3rd vacation home.  

   

We're All Getting Older     

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 The  elderly  population  is  dramatically  increasing  in  size. 

For example,  the U.S. Census Bureau predicts  the population above the age of 85 will double by the year 2020. Seniors 85 years  of  age  and  older will  account  for one‐quarter  to  one‐ third of all senior citizens; as many as 27 million by the middle of the next century. 

                                       

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LIFE EXPECTANCY         

Additional  Life Expectancy  

Age Today         

80 Years  

70 Years  

60 Years  

50 Years  

40 Years  

30 Years       

Longer   life   spans  mean   you'll  need  more  money   to sustain a comfortable  lifestyle  in retirement. But retirement, 

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 for the vast majority of Americans, will not be totally financed by Social Security and pension checks. At best, Social Security will contribute only a portion of the salaries most people now earn. 

  

 The    power    of    company    pension    plans    has    also 

diminished.  More  and  more  employer‐financed  plans  are 

being  replaced  by  plans  in  which  employers  match  only  a 

portion  of  the  contributions  made  by  their  employees. 

Moreover, estimates are that some 20 percent of all pension 

funds are under‐funded.   

 With  the  future  of  Social  Security  so  uncertain  and  the 

first  wave  of  baby‐boomers  now  turning  55,  and  the effectiveness  of  company  pension  plans  lessening,  most people  will  have  to  rely  heavily  on  their  own  savings  and investments during their golden years. 

 

   

If  you  are  like  I  was  and  starting  out  as  a  sole proprietorship (see chapter on “Be Like  MikeRick”) where you are   essentially   self‐employed,   like   a   growing   number   of people these days, you might be assuming that your booming business  will   provide   your   retirement   cushion   or   that   a regular savings account will provide the funds you will need in old age. Is that really a good idea?  How can you be sure you will have  the  substantial  financial  resources you will need  to make  your  retirement  dreams  come  true?        Obviously, systematic planning for your retirement is essential. But what 

  

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 are your options?  One answer  is  to begin  investing  in a  tax‐ deferred  savings  plan,  a  traditional  self‐directed  Individual Retirement Account  (IRA), or one of the newer versions such as  the  Roth   IRA.  By  doing  so,  you'll  harness  the  wealth building strategies of the very rich, compound interest and tax deferral. 

    

What Is An IRA?   

 First,  let's  cover  the  basics.  The  traditional  IRA  is  a 

retirement  investment  vehicle  originally  designed  to  help individuals   not   covered   by   company   pension   plans.   On January 1, 1982, the law governing IRAs was changed to make them available  to  anyone with earned  income who also was under  the  age  of  70½,  whether  or  not  the  individual  was covered by a company pension plan, profit sharing plan, or a 401(k), all of which are known as qualified plans. Remember, everyone with earned  income can have an  IRA and  invest up to $2,000 every year. 

 

     

Compound Interest   

 When   asked,   "What   is   the  most   powerful   force   on 

earth?"    Albert    Einstein    replied    without    hesitation, "compound   interest!"      And   more   than   200   years   ago 

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 Benjamin Franklin defined the concept as "the stone that will turn  all  your  lead  into  gold." How does  it work?  It  is  simply earning interest on your interest, as well as your principle. 

  

 Let's  take  a  look  at  40  years  of  compounding  for  two, 

twenty‐five  year  olds.  The  first  person  makes  a  $2,000 investment  for  each  of  the  first  10  years, while  the  second person waits until  the 11th year  to make a contribution and then  continues  for  the  next  30  years.  Each  portfolio compounds at 10% interest per year. 

     

Year  Annual  Ending  Annual  Ending  

Contribution   Balance  Contribution Balance 

 

1  2,000  2,200  0  0

2  2,000  4,620  0  0

3  2,000  7.282  0  0

4  2.000  10,210  0  0

5  2.000  13,431  0  0

6  2,000  16.974  0  0

7  2,000  20,872  0  0

8  2.000  25,159  0  0

9  2,000  29,875  0  0

 

  

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2,000  216,364 

 2.000  240,200 

  

2,000 266,420

 

10  2,000  35.062  0  0 

30  0  235,886  2,000  126,005

31  0  259,470  2,000  140.806

32  0  285,417  2,000  157.086

33  0  313,959  2.000  174.995

34  0  345.355  2,000  194,694

 

35  0 379,890 

 36 417,879 

 37 459,667 

"You can plan for tomorrow  

today but you can not plan for   0  today tomorrow"  

0 

 

38  0  505,634  2,000  295,262

39  0  556, 197  2,000  326,988

40  0  611,817  2,000  361,887

Total  $20,000  611,817  $60,000  361,887

     

As  astounding  as  it may  seem,  the person who  invested less money, but did so at  the beginning of  the compounding period,  actually  has  over 50% more money  than  the  person who invested three times as much. 

     

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Compound Interest With Tax Deferral   

 With some exceptions discussed  later (see the section on 

ROTH  IRA’s  to  see  how  to  earn  tremendous  returns  “tax‐ free”),  IRAs  defer  all  taxes  until money  is withdrawn  during your   retirement.   This   means   that   you   compound   growth much  faster  than  if  you  had  to  pay  current  taxes.  If  you remember  from  our  example  in  the  previous  chapter when you made  your  first  investment  your  profit was  reduced  by almost 40% because of  taxes.   Deferring or eliminating  taxes allows you to grow your portfolio at an exponential rate.  The longer an  IRA  is kept going, the more this power can work to increase the value of your investments. 

                    

Let's look at two examples. First, a self‐directed IRA is set‐ up and  funded with $2,000. Every year thereafter an annual 

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 contribution of $2,000  is made on  January 1st. Assuming  the IRA  is earning a positive  return,  it will combine  the magic of compound interest with tax deferral. 

 

   

Nobody  knows what  interest  rates will do  in  the  future. But  if your  IRA earned a constant 10 percent return, after 10 years your total $20,000  investment would already be worth $35,000, a $15,000 gain. After 25 years your $50,000 invested would  be  worth  $216,000.  In  35  years  your  $70,000 investment would be worth $596,000, a gain of $526,000! 

 

   

An  IRA  Combines  The  Most  Powerful Forces On Earth ‐ 

 

Compound Interest & Tax Deferral        

Use Other Peoples IRAs Like Your Own Private Bank 

  

 Some creative investors use the IRAs of other people they 

know. They pay  them  a  good  rate of  interest  for  the use of their money or they share a percentage of the profits. 

    

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 Anything  you  can  do  in  your  own  IRA  account  can  be 

done  in someone else’s  IRA.  If you need money to fund your 

deals,  get  your  doctor,  lawyer  or  other  professional  friends 

and associates  to open self‐directed  IRAs at an approved  IRA 

custodian.   What  if  Steve did not  have  the  cash  to  fund  his 

deal, but instead contacted one of his associates (Henry) who 

wanted  a  better  rate  of  return  on  their  retirement  funds. 

Steve borrows the money from Henry and agrees to split the 

deal  with  Henry  50%‐50%.      How much  does  Steve make? 

Steve,   using   his   friends   IRA   money   buys   the   $70,000 

defaulted mortgage for $40,000.  Steve contacts Jack and gets 

Jack  to  refinance  the house.   The mortgage now pays off at 

full value of $70,000.  There is a profit of $30,000.  Since both 

Steve and Henry are going to split the deal 50‐50 Steve makes 

$15,000   and  Henry  makes   $15,000  with   one   exception. 

Henry puts his money directly  into his  IRA and defers having 

to  pay  any  taxes  or  is  simply  exempt  from  all  taxes  on  the 

profit altogether. Steve is still required to pay his taxes.  Steve 

still makes  a  profit, which  he  can  use,  going  into  the  next 

deal.                 

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Tax Deferred, Compounded Growth   

 The  key  to  a  traditional  IRA's  great  power  as  a  financial 

tool  is  that  all of  its  income,  interest, dividends,  and  profits are  exempt  from  taxation  until  a  withdrawal  is made.  This gives  it a great edge over  investments that pay  taxes.  Henry is  in  the position where he can  reinvest 30%‐50% more  than Steve on future deals since he can defer paying taxes. 

  

 Imagine buying defaulted mortgages  in your  IRA or your 

child’s  IRA.   The entire accumulated return on the defaulted mortgage    lien   can 

Success Story  

An  investor  in  the Southwest    ran    out    of money  for  his  real  estate rehabs.  What  he  did  next was  very  creative.  He bought      a      house      for $30,000,   which    included $5,000  for  fix‐up,  using money    from    other investor's  IRAs.  He  paid them  15%  ($2,250)  for  6 months, for the use of their money.  He  sold  the  house for  $52,000.  After  paying 

be  used  to  purchase other  defaulted mortgages  without having  to  pay  your taxes.  Essentially, you  can  get  an additional  30%‐50% to    use    towards future       purchases. So  instead of the  IRS getting  paid  today they either  get paid 30   years   from   now or   possibly   not   at all. 

  

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How To Make Your Child Or Grandchild A Millionaire 

  

 There are compelling reasons why your child, grandchild 

or other young relative should have an IRA:   

 • You  can  transfer  your  assets  to  your  children while 

you're still alive.  

• If  employed,  your  child  or  grandchild will  get  a  tax deduction. 

 • Their money compounds tax deferred for 20, 50 even 

100 years.  

• It  will  create  estates  for  your  children  and 

grandchildren and make them millionaires.  

• The company that hires them gets a tax deduction.  

   

Begin by  investing $2,000 per  year  for  four  years when your child is 10, an $8,000 total cash investment. Compound 

 

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 this amount at 10 percent and it would amount to $1,089,000 by  the  time  the  child  reaches  age  65;  compound  at  12 percent,  and  the  total  would  equal  $2,762,000!  The  same $2,000 investment made for eight years ‐ a $16,000 total cash investment would amount  to $2,017,000 when  compounded at 10 percent, and $5,059,000, compounded at 12 percent! 

   

In  reality  though, no one 

knows what  tax  rates will be 

in     69     years.     Here's     a 

solution.   Start  a  Roth   IRA, 

IRS rule:  

 There is no minimum 

rather than a traditional  IRA, for your child. This new IRA has 

a  unique  feature. While  there  is  no  deduction  from  current 

income taxes for the contribution (and your child won't need 

one),  there  are  also  no  taxes  imposed  when  the money  is 

withdrawn  during  retirement  years.  In  the  above  example, 

your  child would  get  to  keep  the whole  1.4 million  dollars. 

Not bad for a $2,000 one time investment!       

I opened ROTH IRA’s for both of my children.  I look for defaulted mortgages to purchase with the assets in their IRA. As the trustee of the IRA I can make the investments on behalf on my children.  Once the assets are purchased, I have the option of forcing the payoff or letting it sit in my child’s IRA, gaining interest at the full face value until it pays off when the homeowner (debtor) refinances or sells his home. 

   

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“Forever is a long time  

but not as long as it was yesterday.”                                 

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What’s The Bottom Line?  

    

I personally like the idea of combining investing with my 

retirement plans and the retirement plans of my children.  If 

you have no cash to get started, even if you don’t have the 

money to put into your IRA to get started, don’t let that stop 

you.  

   

You can easily get started by finding deals for other 

investors who will pay you a finder’s fee for your efforts. 

After you make some referral fees from a few deals start to 

save some of the money you make so that you can reinvest 

the money into your own portfolio.  As you start to amass a 

portfolio you will need to look for ways to legally shelter 

some of your profits.  IRA’s give you this ability. Using a ROTH 

IRA you can avoid having to pay any taxes on the profits you 

make in your ROTH IRA.  

   

It can literally cost you thousands if you do not get 

started today.  The longer you wait the harder it will be to get 

started later.  The worst mistake you can make is to not get 

started at all.  So what do you do now?  

     

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CHAPTER TWELVE         

WHAT’S NEXT  

   

MY MIND IS SO FULL, WHAT DO I DO NOW?

      

I hope you enjoyed reading and  learning about defaulted 

paper  as much  as  I  enjoyed writing  about  defaulted  paper. 

We  have  covered  how  to  find  defaulted  paper,  how  to  buy 

defaulted  paper,  how  to  use  defaulted  paper  to  buy  real 

estate  for  pennies  on  the  dollar.   We  also  covered  how  to 

make yourself  filthy  rich.   You even  learned how  to get your 

own  full‐fledged  business  going  with  the  least  amount  of 

hassle.  

   

Let’s just review what we covered.  

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Defaulted paper is a good deal     

1.    High Yield on your investment.  

Since  you  are  buying  the  defaulted  paper  at  a 

substantial discount your yield can easily exceed 60% 

per  year.      This  high  yield  is  what makes  paper  so 

attractive.  

   

2.    Real estate acts as the collateral  for all of the paper 

you purchase.  

If  the  payor  refuses  to  bring  the  mortgage  current 

you  could ultimately  foreclose on  the property.   You 

can  then sell  the property at  retail value or keep  the 

property as a very profitable rental.  

   

3.   Monthly  income.  

Once  you buy  the defaulted paper you must bring  it 

current.    One  of  the  easiest  ways  to  do  this  is  by 

allowing    the   homeowner    to   make   his    current 

mortgage   payment   plus   a   little   of   the   overdue     

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 payment  each month  until  the mortgage  is  brought 

current.  

   

4.    Acquire real estate for pennies on the dollar.  

When you buy a note that  is  in default, you have the 

right  to  foreclose  on  the  property.          Some 

homeowners will even give you their house by a Deed 

in Lieu of Foreclosure.  

   

5.    Lump sums of Cash.  

When  the  homeowner  refinances  the note  as  a way 

to bring  the note  current you  receive  all of principal 

owed on the note.  Remember, you get the full value 

of the note, plus  interest.  Not  just what you paid for 

it.  

   

6.    Virtually no competition.  

There will always be people who borrow money.  And 

there  will  always  be  people  who  cannot  pay  the 

money  back.      By  not  following  the  crowd  you  can 

invest  in  a  area  that  95%  of  other  investors  know 

nothing about.     

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 7.    No money to get started. 

 One  of  the  best  features  of  defaulted  paper  is  that 

you  do  not  have  to  have  any money  to  get  started. 

You  can  simply  finds  the  deals  and  bring  them  to 

Heartview for a substantial finders fee.                                      

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You Get The Property     

When you purchase a note that is secured by real estate 

you have a lot of power. When you buy a note that is 

secured by real estate and is in default you have several 

choices.  The easiest way to profit is by obtaining a Deed In 

Lieu of Foreclosure. With the Deed In Lieu you now have 

ownership of the property and can sell it a full retail value or 

rent the property out at current rental rates.     

Be Your Own Boss     

You’ve dreamed  about being  your own boss.   Now  you 

will know how.  You can make the kind of money most people 

only imagine, working just a few hours a week.  And all of the 

profit  goes  straight  into  your  pocket.    Finally,  you have  the 

time,  freedom  and money  to  do what  you want, when  you 

want.    You’ve  got  to  agree  that  the  best  job  in  the  world 

would be one where you can work for yourself, set your own 

hours,  live  anywhere  you wish,  and  see  your  income  rise or 

even double  each  year.   What  you have  just  read  can help 

those dreams come true.      

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 We also  talked about how  to  set up your own business 

so  that you  can duplicate my  success.   We  talked  about  the 

different   types   of   ownership,   expenses   that   might   be 

involved and potential licensing issues for the business.       

Rule of 72  

 Rule of 72 is the fast and easy way to calculate how long

it takes an amount of money to double depending on the interest rate. Remember, to use the rule of 72 you simply divide the whole number of the interest rate or return into 72. The result is how long it takes for that amount to double in value. Investing in defaulted paper is a much better way to grow your portfolio due the dramatic increase in yield you earn from the defaulted paper.

 

Tax Free Investing     

We  talked  about  how  to  use  our  retirement  plans  to 

invest in defaulted paper.  Using your IRA, ROTH IRA, KEOGH, 

401K, or other approved pension plan you can buy defaulted 

notes.      By making  the  enormous  returns  available  to  you 

through  defaulted  paper  you  can  increase  your  yield  even 

further when you do not have to pay any taxes.   I  like  to do 

my share and pay my required portion of taxes, but if the IRS  

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 is going to give me a approved method to make more money, 

then I am going to use it and so should you.       

Next Step     

Now  read  this:   You can do  it.  Don’t  let anyone else tell 

you otherwise.  More people  fail, not because  they  can’t do 

the  work,  but  because  the  support  structure  around  them 

causes  them  to  “believe”  that  they  can’t.    I  heard  a  phrase 

once “don’t try ..do”.   If you only try then you leave open the 

possibility  that  you will  fail.   If  you  just  “do  it”  like  the Nike 

commercial says you will be successful.  

   

Over  the years  I have met many very  successful people who 

have made  a  lot of money.   I have  found  that  all  successful 

people have three things in common:  

• Knowledge  

• Wisdom  

• Action     

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 Knowledge is not power, it is information. Wisdom is 

knowing what to do with what you know and Action is the 

real power that turns your dreams and desires into reality.  

   

Now is the best time for you to get started.  Do you want 

to follow the crowd and work a 9‐5 job making someone else 

rich or do you want to take control your financial future.  

   

I have a question that I like to ask a lot of students at my 

seminars who are interested in getting started in the 

defaulted paper industry.  

   

Are you going to be like the average Joe who gets up and 

walks out after learning how they can now take charge of 

their financial life or are you going to take charge right now 

and enjoy life.  

   

Imagine that you don't get started with the program 

today and you move the clock ahead one year.  Is your life 

any different than it is today?  Sure you might get a new car 

or get a promotion at work, but your life is essentially the 

same.      

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 Now  let's move  the  clock  back  to  today.    You  get 

started  toady and  start  looking  for defaulted mortgages  that 

you can purchase or  flip  to another  investor.   You now  start 

making  an  additional  $5,000  ‐  $10,000  per month  in  extra 

income.   Now move  the  clock ahead one year.   How  is your 

life now?   Are you able  to pay off your bills?   How about go 

on  that dream  vacation, or buy  that big  screen TV you have 

always wanted.   Or maybe you just have more time to spend 

doing the things you want w‐your family.  

   

For  many  students  it  is  hearing  the  success  stories  of 

other   successful   defaulted   paper   investors   that  motivate 

them to go out and  just do  it.   Please write to my office with 

your defaulted paper  investing  success  stories.   Include  your 

written permission for me to share your success with others.  

      

Get Started Now and Take Action  

   

Reading books  is  a  lot of  fun  and  you  can  learn  a  lot of 

information.    The  information  does  not  make  you money. 

Your ability  to  take action on  the deals you  find  is what puts 

money in your pocket.    

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I want to help you in any way that I can. 

So here is how you can take action. 

I have formed a team of individuals who are serious 

about creating wealth for themselves and their families.  The 

team is called the Success Team.  Now I am looking for a few 

individuals to become members of that success team.  

   

Unfortunately, we cannot work with everyone, we 

simply do not have the man power to do so, but if you are 

open minded and teachable, can set aside a few hours per 

week to work the business, and you are serious and 

committed to changing your financial situation, then what I 

want you to do, is call my office.  

   

I have a small team of Business Consultants who will 

take the time to conduct an initial interview for the Success 

Team.  These consultants have been given the responsibility 

of selecting the Success Team members for me.  

     

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 Now once again, while I want everyone who is serious to 

call now, do not be offended if we cannot work with you, 

because we simply cannot work with everyone, but I do want 

EVRYONE who is serious about changing his or her life to call.  

   

Here is the number to call: 1‐888‐678‐0999  

   

Believe in the power of you. Who you were in the past does not make what you will be in the future. Control your own destiny and get started today.

                            

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Glossary of Mortgage Terms  

    

A- thru D Credit:  

 Credit considered being less than perfect including late payments, collections, liens, bankruptcy, foreclosure, and hard to document income or assets. Also known as "sub-prime", A- thru D credit includes anything keeping a borrower from obtaining a FannieMae or FreddieMac type loan.

 Amortization:

 

 The repayment of a loan through installment payments.

 

 Amortization Schedule:

 

 A schedule of payments designed to liquidate a debt. May be over any agreed upon period of time. An example of this would be a standard 30-year mortgage amortization wherein a borrower would make 360 equal consecutive monthly payments at the end of which the original loan would be paid in full.

 Amortization Term:

 The agreed upon number of months or years a borrower will be making payments to liquidate an original debt.

    

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 Annual Percentage Rate:

 

 Also known as A.P.R. the Annual Percentage Rate is the cost of your credit expressed in terms of an annual rate. The A.P.R. takes into account "points" or "closing costs" that may be included in your loan amount and is often higher than your interest rate for this reason.

 Appraised Value:

 

 The value assigned to a property by a licensed professional to assess its fair market value.

 Balloon Payment:

 

 An inflated payment that comes due at an agreed upon time, usually at the end of the loan term.

 Bankruptcy:

 

 A debtor that is judged legally insolvent and whose remaining property is then administered for the creditors or is distributed among them.

 Cash Out Refinance:

 A type of loan wherein an existing loan is refinanced and the borrower is allowed to receive cash in addition to the amount of the home loan. The cash is considered part of the amount financed and is part of the lien against the property securing the loan.

 

  

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 Closing:

 

 The time at which all loan documents have been signed and a period wherein the borrower has the right to rescind has passed. A loan has closed when funds are disbursed to the appropriate parties and the creditor for the amount of the “closed” loan has placed a lien against the property.

 Consumer Reporting Agency:

 

 Also known as a bureau, a Credit Reporting Agency tracks payment history, account activity and other relevant public records for the purposes of determining credit worthiness of individuals.

 Credit History:

 

 A history of an individuals ability to pay their bills on time as well as any other relevant public records.

 Credit Report:

 A report outlining an individuals credit history, public records and credit worthiness.

 

            

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 Discounting 

  

 Discounting is the process where less than the face value or 

balance of a note is paid when it is purchased or sold. 

Discounting is occasionally confused with the term yield. A 

note is discounted a certain percentage to equal a certain 

yield. These two percentages maybe the same, which leads to 

the confusion. Ii 

 Documents:

 

 Disclosures and written agreements that are required for the closing of a loan. Documents are the contract upon which the terms of a loan are outlined and agreed upon.

 Equal Credit Opportunity Act:

 

 Federal Law aimed at protecting borrowers from being discriminated against based upon such things as ethnicity, sex, location of property and religious beliefs.

 Equity:

 The difference between what is owed against a property

and its fair market value is the properties Equity.  

 Escrow

    

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 As often happens in real estate, we use the same word to

mean several different things. In its simplest meaning, an escrow is a depository for various items needed to complete a transaction. A neutral, third party, escrow agent manages it. In purchasing real estate, the escrow agent is frequently the title company closing the sale. Escrow is opened with a purchase agreement and the earnest money deposit. Escrow is closed after all the documents have been completed and recorded and all the money has been received and disbursed. This is a short- term escrow for a specific transaction. It can also be used to complete the purchase of discounted paper. A second type of escrow is a long-term escrow. These typically involve an escrow company that acts as a servicing agent for receiving and disbursing payments throughout the life of a loan. Such an escrow may be setup for thirty years or longer. When buying a mortgage that is the subject of this type of escrow, an estoppel letter may not be required and the escrow agent can provide a full payment history as well as copies of all required documents.

    

Estoppel Letter               

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 This is a letter sent to any or all parties to an agreement 

summarizing the terms of the agreement and giving an opportunity to say the terms are wrong. In a note and mortgage situation, for instance, an estoppel letter might be sent to the payor citing the current outstanding balance, the payment amount, the interest rate and the due date of the next payment. It might also ask if there are any side agreements modifying the original recorded documents. If the payor signs the letter without making any changes, he is prevented from charging at some future date that the terms were in error. It basically says, "speak now, or forever hold your peace." When buying the rights to receive payments, it is essential that the person making the payments is it. 

 First Loan:

 

 This is what most people think of when someone says mortgage. It is a loan in first position against a property that is usually the balance of the loan used to purchase a property in the first place. All other loans against the property are subordinate to this loan.

 Foreclosure:

 

 Procedure whereby property pledged as security for a debt is sold to pay the debt in the event of default in payments or terms.

 Housing Expense Ratio:

 Also known as Debt to Income Ratio. This number is calculated by dividing all of a borrowers monthly obligations

 

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 by their monthly gross income. Example: Mark has a total of $1200 in monthly bills and his gross income is $2400 per month. Therefore: 1200/2400 = 50%. Mark's Debt to Income Ratio is 50%.

 Interest Rate:

 

 A charge for a loan usually a percentage of the amount loaned.

 

 Joint Tenancy:

 

 Joint ownership by two or more persons with right of survivorship; all joint tenants own equal interest and have equal rights in the property.

 Liability:

 

 Something for which one is liable; an obligation, responsibility, or debt. Examples of liability would include, a mortgage payment, a tax bill, an insurance bill, etc.

 Lien:

 

 A form of encumbrance, which usually makes property security for the payment of a debt or discharge of an obligation. Examples would include: judgments, taxes, mortgages, deeds of trust, etc.

 Loan Origination:

 The beginning of the loan process. Initial contact wherein the borrower and lender agree to work together to secure a loan.

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 Usually an application is taken and an initial quote is given. The borrower is asked to supply documents supporting the information that is included in the application and upon which the quote is based.

 Loan to Value (LTV):

 

 The Loan to Value is the percentage of what is owed against the property vs. what the properties fair market value is.

 Lock:

 

 A commitment from a lender to guarantee an interest rate for a borrower for a period of time. Rate locks expire after an agreed upon time.

 Mortgage:

 

 An instrument recognized by law by which property is hypothecated to secure the payment of a debt or obligation; procedure for foreclosure in event of default is established by statute.

 Mortgage Banker:

 

 A direct mortgage lender. No middlemen here. A mortgage banker or lender funds loans in his or her own name and is usually more competitive than a broker in terms of "points" and "fees".

 Mortgage Broker:

 

  

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 A person who arranges mortgage loans through mortgage bankers. This person acts as a middleman and is not limited to the restrictions of having to go through only one lender. This person can "shop" your loan to get you the best rate and term available.

                                        

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 Mortgagee:

 

 One to whom a mortgagor gives a mortgage to secure a loan or performance of an obligation, a lender.

 Mortgagor:

 

 One who gives a mortgage on his property to secure a loan or assure performance of an obligation, a borrower.

 Negative Amortization:

 

 A loan in which the interest rate and payment may change independently from each other creating the potential for the principal balance of the loan to increase rather than decrease over the term of the loan. Several variations exist and all can create problems when attempting to put a second mortgage behind a negative-amortizing loan.

 Net Worth:

 

 Net worth is the difference between an individuals assets and liabilities. Net worth takes into consideration all assets and liabilities liquid or not and can be a positive or negative number.

 No Cash Out Refinance:

 

 Also known as a "Rate and Term" refinance, this is a loan in which a lender simply refinances the existing first mortgage and no other bills are paid off and the borrower receives no

 

  

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 cash as part of the transaction. These loans are usually done to improve the borrower's interest rate and to lower their mortgage payment.

 Notice of Default 

  

 A notice of default is the formal notice that foreclosure proceedings have started on z piece of real estate due to the default on the loan on the property. It is recorded against the property and starts the legal process of foreclosure. 

 Origination Fee

 

 This fee is the mortgage lender’s yield and is also known as points.

 Point(s)

 

 A point equals one percent of the mortgage loan amount. If you were charged one point on a $100,000 loan you would pay $1,000.

 P. R.

 

 P. R. stands for "Preliminary Title Report." This is a summary of the status of the title to a piece of real estate. It indicates who owns apiece of real estate and what loans, liens or encumbrances affect the tithe. A "P. R." is usually done by a tithe company and precedes their issuance of "tithe insurance" that

 

  

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 Prepayment

 

 Provision made for loan payments to be larger than those specified in the note.

 Present Balance

 

 The present balance  is  the amount  still owing on a  loan at a 

particular  time. For example an original  loan may have been 

for $10,000.00 a few years ago, but now the balance may be 

only $$94,000.  

Present Value  

Present value refers to  the present discounted price or value 

of a  single or  series of  future payments.   Present and  future 

values have  to do with  the  time value of money.  It converts 

the value atone time to a past, present or future date. It takes 

into account a factor such as a yield or rate of return that an 

investor needs. 

 Principal

 

 This term is used to mean the amount of money borrowed or the amount of the loan.

 Principal Balance

 

 The balance of the amount of the loan that is outstanding.

 

 Processor

 

  

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 A liaison between the loan officer and the funder of a loan. The processor's responsibility is to meet all of the pre-funding conditions of a loan including, gathering all documentation and the clarification of information.

 Remaining Term

 

 The time that is left before a loan is paid in full.

 

 Second Loan (mortgage)

 

 A second mortgage is another loan secured by the property much like a first mortgage. It is a loan, which is subordinate to the first mortgage.

 Sub-Prime or sub prime

 

 A sub-prime loan is any loan in which the borrower has challenges in obtaining mortgage financing because of poor credit, hard to document income or assets, or any unique situation that would prevent them from obtaining funding through "conforming" lenders.

 Tenancy in Common: Ownership by two or more persons who hold undivided interest, without right of survivorship; interests need not be equal.

 Term: The agreed to amount of time for repayment of a loan.

       

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 Trust Deed: Just as with a mortgage, this is a legal document by which a borrower pledges certain real property or collateral as guarantee for the repayment of a loan.

 Trustee: One who holds property in trust for another to secure the performance of an obligation.

 Wrap 

 

 "Wrap" is short for wrap‐around loan. A wrap‐around loan is a loan that includes another previous loan; this previous loan is usually called the underlying loan. An example of a wrap is a property that has a $50,000.00 loan, which includes a previous loan of $30,000.00. The difference of $20,000.00 is the "equity in the wrap". A wrap may be in the form of an "All‐Inclusive Trust Deed" (AITD) or Contract For Deed 

 

    

Yield:  

Yield refers to the rate of return of an investment. It has 

particular application to discounted paper. If paper is bought 

at a discount, the investor receives his return in the form of 

the interest rate that the note bears as well as the return of 

the discount. Added together‐‐they equal the yield. Yield 

should not be confused with discount. A note maybe 

discounted‐3 0% to equal a 24% yield. The yield is 24% not 

30%. They are not synonymous.    

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