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Thoughts from the desk of Bob Repass…

April has been another hectic month for all of us here at Colonial Funding and NoteSchool. We are finally settling in to our new office location. We made it past the dreaded Tax Day of April 15th. We celebrated the Easter Holiday with our families. We held a Big Money 3-day class across the border in Vancouver, Canada. We attended InfusionCon so that we can learn how to best maximize our database to communicate more effectively with all our clients and students. And we hosted several potential capital partners as we look to build our Colonial Capital Management entity.

If I had to describe the month in one word it would be commitment. We have committed the necessary resources and manpower required to be in the best position we can to provide all of you with the things you need to be successful. But another event this month really drove home the theme of commitment and that was the wedding of Eddie and Martha’s daughter Emily.

My wife, Angie and I along with Charles, Susan and her husband, Jesse traveled to Natchez, Mississippi to attend the beautiful ceremony where Emily married Matt Edwards who has been working in our office as our Due Diligence Coordinator. As Emily and Matt committed their lives to one another I realized just how prominent commitment is in our everyday life.

It is my hope that we reflect our commitment to you in everything we do.

Bob Repass

Managing Director


The Trading Corner – The School of Hard Knocks

Why There’s a Thing Called Due Diligence

Believe it or not, note sellers do not always tell the truth. Now most of them do not lie straight to your face, but they do tend to omit relevant information. It is sort of like how the Pastor of my church explains the different kinds of sin. There is the sin of commission (no we are not talking about broker fees) which refers to knowing something is wrong but doing it anyway, whereas the sin of omission is failing to do something you can and ought to do. Note Investors rely on note sellers to provide accurate, detailed information on each transaction.

It is imperative you ask ALL of the necessary questions to get the details needed. There is a reason why all investors want the original collateral and a verifiable pay history. Let me tell you a story of a situation I was faced with due to the note seller omitting a key piece of information.

I was presented with what appeared, at least on the surface, as a quality note to purchase. The note was secured by an owner-occupied single family residence in Houston, Texas. The borrower put down a strong down payment of over 20% and had a credit score of over 700. The BPO came back supporting the sales price as the current market value. So far, so good – right?

When the note seller of this seller financed transaction submitted the loan file to us for our due diligence review, there was a pay history included. It was a standard pay history template where the payment amount, date received and new unpaid principal balance are filled in. Now our first clue should have been the cookie-cutter format in which the form was completed. Basically it looked like all the note seller did was copy the information straight off the amortization schedule. All payments were for the exact amount, all paid on the first of each month (even if the 1st was a holiday or a Sunday) and the unpaid principal balance amortized down to the penny.

Of course this is a typical pay history provided to note investors, so nothing appeared out of the ordinary. The deal funded and we wired the money. We boarded the loan and set-up servicing. Little did we know at that time the fun was just beginning. Shortly after the borrower received his welcome letter from us, he immediately called to let us know the information on the letter was incorrect.

“There’s no way I owe $118,000 on my loan” he said. We tried to explain to him that when we purchased the loan we received a pay history showing his balance and when his next payment was due. “Well what about the $40,000 I paid on my mortgage when I got my bonus last December (now 7 months ago)? The only thing our representative could muster at first was “Excuse me?!”

The borrower went on to explain that when he received his annual bonus he sent the note seller a lump sum payment of $40,000 to reduce his balance. Upon further investigation, and numerous phone calls to the note seller we were able to determine that the borrower did indeed make the lump sum payment as stated.

Talk About Being Upside Down

So instead of buying a loan with a $118,000 balance, we really bought a loan with an unpaid principal balance of $78,000. The problem we had is we paid more than that for the loan. Talk about being upside down!

The situation escalated to where legal proceedings were threatened on the note seller in order for us to recoup the difference in the loan balance we purchased. The good news is after several months we did indeed get the money due to us from the note seller. The borrower also paid as agreed and eventually paid us off early. The bad news is we spent a lot of time, money and energy resolving an issue that could’ve been avoided up front.

I cannot stress enough the importance of doing a thorough job on the front-end by getting all the correct information and asking direct questions when verifying all the information.

Case Study

Note Investors: Helping People Stay in Their Homes

Ms. Solomon was desperately trying to help her father. She became the financial and medical advocate for him since her mother’s passing in 2011. Her father was in poor health and simply unable to afford the mortgage on the property that he and his wife had shared. Letters to the bank went unanswered and their future was uncertain.

The property value had dropped on their Florida home to $60,000; far less than the $110,000 that was owed. Ms. Solomon was desperate to work with the bank but wasn’t able to find anyone who could help her. Her goal was very clear: she wanted to make a short payoff so that she could move into the house and provide for her ailing father.

The note and mortgage were sold by the bank and eventually purchased for $35,000 by NoteSchool Mentor Students, TJ and Rick. These business partners studied the file and recognized that the father and daughter were emotionally attached to the property. They simply wanted someone to listen to them and to work out a solution. TJ and Rick did just that.

TJ and Rick were able to quickly present 2 options for Ms. Solomon:

  • Option 1: A short payoff of $55,000.
  • Option 2: $35,000 payoff with a new $35,000 loan.

If she chose Option 1, TJ and Rick were willing to forgive 50% of the loan. In addition, they would forgive all past due payments and waive their deficiency clause.

If she chose Option 2, they would reduce the balance of the loan to $35,000. They would also reduce the interest rate to 5%, shorten the payoff to 72 and lower their payment to $564 per month.

Ms. Solomon chose Option 1. This lingering problem was solved very quickly once TJ and Rick owned the note. Ms. Solomon was able to keep her father in his comfortable and familiar surroundings without the fear of losing the home.

The solution to this real estate crisis is the entrepreneur. Unlike big lenders, entrepreneurs such as note investors have the ability to make quick and nimble decisions. These quick decisions can make the difference between somebody remaining in their home or having to move out.

rileyEmployee Spotlight

Top Ten with Riley Goff

There are many people behind the scenes that drive the engine to make our companies successful. Each month in this section we will turn the spotlight on one of these people so you can get to know them better. This month is Riley Goff, Customer Support & Fulllment Specialist for NoteSchool.

How long have you been with Colonial Funding Group/NoteSchool?
About 3 years

What is your role at Colonial Funding Group/NoteSchool?
I do several things here at NoteSchool, customer support, order fulfillment, shipping for events, ordering supplies for events, and whatever else I can help with.

Favorite Color?
Forest Green

Favorite Food?
A juicy steak

Favorite TV Show?
Sons of Anarchy

Favorite Movie of all-time?
Saving Private Ryan

Last Book You Read?
I am currently reading JFK and the Unspeakable

Favorite Sports Team?
Dallas Cowboys & Boston Red Sox

The 3 people you would like to have dinner with (dead or alive)?
Phil Robertson, Johnny Cash, and my grandfather.

What do you like best about working at Colonial Funding Group/NoteSchool?
The CFG & NoteSchool staff is tremendous, having boss’s like Mr. Speed & Mr. Repass, and the opportunity to learn about the note industry.

Quote of the Month

“The quality of a person’s life is in direct proportion to their commitment to excellence, regardless of their chosen field of endeavor.”–Vince Lombardi

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