Examining the Mind of the Note Holder – Part 2 of 3

Written by Jeffrey R. Armstrong – President/Owner of Armstrong Capital

Your favorite Master Note Buyer – Straightforward, Honest, Fair…

Marketing for notes is more than just sending out a postcard or building a website.  There are many reasons why a note holder responds to your marketing efforts and then subsequently accepts an offer on their note.  This month we continue with part 2 of 3 in the series of examining the mind of the note holder. This information will help you in creating more targeted marketing materials as well as when you are talking on the phone and negotiating with note holders.  The Reasons for Not Selling correspond with the Best Proven Responses below.  Have you heard some of these reasons for not selling?  Maybe some of the following will resonate with you.

More Reasons for Not Selling:

1) – The property is worth more than what I sold it for and I’d love to get it back.

2) – The property value is much higher now than when sold and if the buyer defaults I can sell it for much more than before.

3) – They say the property is worth way more than the unpaid balance.

4) – If I get the property back I can resell it for more than your offer.

Best Proven Responses:

1) & 2) & 3)  While that may or may not be true today, only an appraisal can determine that, do you have one? After witnessing the burst of the housing bubble in recent years it is highly doubtful.  Very few areas of the country right now are experiencing any kind of rise in property values.  And as to getting the property back, have you ever had to foreclose on someone? It’s not that simple.  There are several hundreds if not thousands of dollars and a great deal of time to invest in the process of foreclosure.  In addition, your borrowers may be afforded the legal right to live in that property, rent free, during the process.  The borrowers may use delay tactics, such as declare bankruptcy, which would net them even more time in the property and more expense for you.  What kind of condition do you think the property will be in if you get it back?  Are you also willing to invest several more thousand dollars of your own money to fix it up to sell it?

As with any kind of investment, you have to look at both sides of the situation.  I do not know what is right in your situation but being in this business I have heard countless foreclosure horror stories over the years and I wouldn’t want yours to be the next one.

4) How likely is it that the borrowers will default?  Have they made all their payments on time? Most people will pay their house payment before they pay their cell phone bill, cable bill or other bills because if they don’t pay their house payment, they don’t have a place to live? Are the borrowers currently employed and still have their jobs? (A barrage of questions like these will sometimes quickly diffuse this type of objection.)

More Reasons for Not Selling:

1) – I have no reason to sell it because I do not need the money

2) – Feel like they are losing money

3) – I’m losing money if I sell for that amount

Best Proven Responses:

1) There are several ways to respond to this that will get the seller thinking before they give me a definite answer.  One is being in control of your money versus depending on the borrower to send you payments.  Another that will work is bringing up their own debt and what rates are they currently paying.  And that by paying off their debt now, they will be better off and make more money in the long run. You could also point out what the cost of gas is today versus when they started driving and ask them what they think the cost of gas will be in 5-10 years (or when the note stops paying).  Then move on to how the cost of everything in general will be more expensive in the future compared to today, yet they will still be receiving the same small payment amount.

2) Remind them they are not handing over an account with the balance of the note in it.  Remind them that while they may be losing potential future money, they are receiving 10-25 years worth of future income immediately, and while they wait on that income to trickle in they are losing opportunities to make more money with what we pay them.  Try to get them to talk about what the money today could accomplish (could they pay off enough debt to more than account for the loss of the monthly payment?).

3) You are not really losing money if you consider that you could put the amount we are offering in a different financial vehicle that will make you more money over the long term.  This gets them asking how, then I show them they are really only “earning” an interest rate of about half of what they think they are (if you account for taxes, servicing fees, long term etc.).

The bottom line with all of these responses is to keep the seller talking.  There is no one response or one-liner that I can give you that will make the seller says yes every single time, no golden phrase.  I think the key to being successful in the note business is getting to know the seller and “really” listening to what they say.  In return the seller begins to know and trust me.  When I get them to let their guard down I can typically find out what the real reason is they called. Once in awhile they really are “just curious”.  However, most other times they aren’t.  Sometimes you will find out the real reason for their call on the first phone call and other times it may take several conversations.  Sometimes when I call to follow up I just call to check in on them and say hi without even bringing up their note and I let them bring it up. Then we go from there.

Remember, success demands action! Keep on marketing, it’s going to work! TWITA! (That’s What I’m Talking About!)