Subject- Private Mortgages and Notes – Bill Mencarow

November 22, 2005 — Leave a comment

Subject- Private Mortgages and Notes

Hello All,

I hope my 7-part e-mail course “How To Get Started Profiting From Notes” has been of help to you.

Here’s another Bonus Lesson:
I asked my wife, Alison, to tell us about her most unusual note deal.

It’s quite a story — in her words, “a textbook case for those skeptical about seller-financed real estate deals.”

I haven’t been able to send any bonus lessons for the past month, as we’ve been in Europe.

We had a fabulous time — we took a 12 day Mediterranean cruise and then drove around exploring Spain. I want to thank our note payors for working hard every day so they could send us checks while we were on vacation 🙂


Bill Mencarow
President, The Paper Source, Inc.

P.S. Is it really possible to create your own notes yielding 25% – 50% and more? Find out how at

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A textbook case for those skeptical about seller-financed real
estate deals

By Alison Mencarow, Publisher, The Paper Source Journal

“Hello, I am hoping you can help me.”

That was the opening of an e-mail. As publisher of THE PAPER SOURCE JOURNAL I’m used to receiving a lot of requests to buy notes and make loans. They’re usually such oddball notes I rarely get past the first perfunctory questions before ruling them out.

But this one was different.

The e-mail message continued, the writer explaining his personal situation.

He was disabled, his wife soon to be on kidney dialysis. His credit was destroyed when he became disabled; a balloon of $6,500 on his home was due in 8 months and the note
holder refused to extend it. He was looking for a loan to pay the balloon. All of this information was in an e-mail he sent me, a complete stranger he found on the Internet.

I don’t make loans and didn’t want to get involved, but felt so sorry for him that I asked for more details. He e-mailed the information, and I immediately saw this was (in Edd Lay’s
terminology) a “3 crappie” deal: bad house, bad neighborhood and payor with bad cred*it. My husband Bill thought I was joking when I gave him the details. A veteran note investor familiar with the area thought buying a note there was a bad idea.

None of that stopped me. I offered to make my e-mail friend (I’ll call him Jim) a low-interest loan to pay his balloon, pending my inspection of all the necessary documents which I asked Jim to send, along with substantial personal information including six months of bank statements. If Jim were a con man I’d never hear from him again. But sure enough, everything I’d asked for arrived shortly. I felt the deal had to be legitimate: the settlement sheet was a very simple hand-typed document from the title company (nothing like a HUD-1), and the note was only one paragraph long. A con man would have used standard forms!

Learn to profit from the hottest cash flow markets around! and

In the meantime, I told Jim I’d rather purchase the existing note including balloon, which would give me a good yield, instead of making the loan. We would just modify the note to reflect our
new terms amortizing the loan.** He said the note holder (fromwhom he’d bought the house) was 93, uneducated and hard to deal with; she wouldn’t be able to understand selling the note.
I explained to Jim that with the loan he would pay all closingcosts; if I could purchase the existing note he would pay nothing.

(Editor’s note: Alison knew you never tear up the old note and write a new one, you always modify the existing note. If you write a new one, it could become subordinate to existing liens.)

“Please Burn Down The House”

The paperwork from Jim was O.K. with only a minor problem that could be solved. I called and spoke with him for the first time; previously our only contact was by e-mail. I now learned that Jim had several problems with the seller (“Mrs. Seller”). It was obvious that she was doing her best to make him default on the note. She had moved at least twice and not given him her new
address for mailing his payments.

Most disturbing, her son urged Jim to burn the house down and default on the note!

(The land is more valuable without the house). Jim was terrified they would eventually be successful in taking his home away, and he was immensely grateful that I was willing to make the loan.

The Payor Negotiates For The Buyer

Two months after our conversations started, Jim e-mailed to say Mrs. Seller was in dire straits and might entertain my offer to buy the note. I asked him how to contact her, but Jim said she wouldn’t understand who I was. I decided to ask Jim, the note payor, to make my purchase offer (I don’t recommend that technique, but this deal was so bizarre anyway, I thought what the heck…) I coached him on what to say, and what not to say, and gave him my bottom line price.

After a few days, Jim e-mailed to say Mrs. Seller didn’t like my price, but he thought she would accept $500 more.

Jim offered to pay the additional $500!

The deal was finally accepted. (I applied Jim’s $500 to his first payment.) I used the local small town title company that had closed the property sale six years earlier. They were wonderful
and got to work the day I called. Just as Jim had said, the seller was very difficult for them to deal with. After lots of phone calls, the deal was finally signed and recorded.

The Importance Of Reading EVERYTHING

The small paperwork problem I mentioned: The property sale was in Missouri, and since Mrs. Seller had moved away from the area, she had the General Warranty Deed notarized by a notary where she’d moved. I noticed that the notary wrote that Mrs. Seller signed the deed October 4, 1995; then the notary wrote that her commission expired September 30, 1995! Because a title insurance policy had been issued I didn’t really think this would be a problem.

I’ve since talked to many long-time note buyers and no one has seen anything like this. My title company drew up a Quit Claim Deed for Mrs. Seller to sign, stating in it the purpose was to perfect the title, referring to the notary’s error. Problem solved.

Problem *almost* solved. My title company in Missouri recorded the documents. Anxious to make sure the Transfer of Lien had been recorded, Jim went to the courthouse to check on it. He wassharp enough to discover in the Quit Claim Deed that Mrs. Seller’s new notary’s commission had expired five months earlier!!

(Jim was unaware of the problem with the original deed. I didn’t alert him to it, afraid it would scare him.) After a few more phone calls my title company discovered the notary had just written the date wrong and her commission was still valid. The Quit Claim Deed was corrected and recorded once again.

Deeds to Jim’s property are now recorded three times, two of them correcting problems in the previous!

Throughout this entire transaction I’ve only spoken with Jim once; all our correspondence has been via e-mail. I had no contact with the noteseller whatsoever.


How did things turn out? What I initially offered as a low-interest loan to a stranger on the Internet instead turned into a note purchase with a very good yield. Jim saved money because he didn’t incur the costs of a new loan.

The story of Jim’s home purchase is a textbook case for those skeptical about seller-financed real estate deals. His bad credit disqualified him for a conventional loan (and most seller
financing). The house he wanted to buy was not in very good shape so it wasn’t attractive to many buyers. This was a perfect match.

Jim was able to purchase his home because of seller financing. Mrs. Seller was able to sell an undesirable house, and then sold her note with balloon several years later for a very small discount.

I, the note buyer, am making a very nice return on my investment.

How is Jim paying? The same Jim with credit so bad I didn’t even bother to check it? The first payment he made to me was in cash that he took to the title company (his $500 for the note purchase), before it was due, without being asked. Before his next paymentwas due he e-mailed asking if I wanted a personal check, bank check,money order? Did I want it sent registered, certified?(Although I told him personal check via regular mail, he sent a bank check, registered mail.) When the mailing labels I promised to send him hadn’t arrived yet (because I hadn’t yet sent them), he anxiously e-mailed to remind me that he needed them so he could send his payment.

His payments always arrive early, and I’m certain they will
continue to arrive on time. Unlike a lot of note payors,
Jim understands the importance of making timely mort*gage payments.

Jim was like a lot of us, like a lot of our friends. He was well educated, and had a good paying white-collar job.

That is, until an accident and several surgeries rendered himunable to continue working. Medical bills used up allof his savings. Eventually, Jim, his wife with kidney disease and their children ended up on the street. They were living in their car when they found their current home.

He appreciates his home in a way that most of us probably can’t. Jim knows what living on the street is like, and he’s determined
he’ll never end up there again.

Alison Mencarow is a note investor and is co-founder and Publisher
of THE PAPER SOURCE JOURNAL. Formerly she worked as Press Secretary
and writer for two members of Congress in Washington, D.C. and on the speechwriting staff of the Vice President of the U.S.

(I, her husband, think that what Alison did in the above article is an example for all of us of bringing the love of Christ into the business world; a great Christian testimony.)

Her e-mail address is If you liked her article, please let her know!

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