Education | Evergreen Mortgage Notes
Image: What is a note?

What is a note?

A note is the piece of paper that is the promise to repay a loan such as a 1st or 2nd mortgage.  It is backed by the real estate.  Notes that are non-performing, where borrowers have stopped paying, are purchased directly from banks or hedge funds.  When you purchase a note, you become the bank.

Why invest in notes?

Notes are Recession Proof

Note investors have opportunities to purchase distressed assets and get better returns on investments than with other types of investments such as traditional IRAs, 401Ks, CDs, and mutual funds.  Adding note investments to your portfolio increases your diversification while decreasing your exposure to volatile markets.

Ample Inventory

There is more inventory in notes than in traditional real estate.  According to CoreLogic, "During the fourth quarter, the total number of mortgaged homes with negative equity hit 3.17 million, or 6.2% of all homes with a mortgage. Negative equity, often referred to as being "underwater" or "upside down," applies to borrowers who owe more on their mortgages than their homes are worth. Negative equity can occur because of a decline in home value, an increase in mortgage debt or both." Note investors see these underwater properties 6 to 12 months ahead of traditional real estate investors.

Lower Cost

Note Investors get better pricing on distressed assets.  Typically, non-performing loans are purchased at 30 to 40% of fair market value instead of the 80 to 85% that traditional investors pay once it hits the market as a Real Estate Owned (REO) or bank owned property that has gone to foreclosure.

Why does the investment pay out?

At Evergreen Financial, it takes us between four and 12 months to turn over a note.  There are four exit strategies:

  1. Doing a Loan Modification: This means getting the owner of the home who is unable to pay their, as an example, $1000 a month mortgage, to pay a $600 mortgage, over a longer period. This is called getting the loan to "re-perform."  After the owner pays for six months, we can sell the mortgage to another bank at nearly double what we paid.  Because the loan is now "re-performing," it has much more value than when we bought it. 
  2. A short sale: In this situation, the owner of the home sells it to repay the note. A real estate short sale occurs when the lender (such as a bank or note investor) and the borrower decide that selling the property at a moderate loss is preferable to the borrower defaulting on the loan.  Because the note was bought at a discount, we, as lenders, can accept a lower sale price.
  3. A deed in lieu: This means the owner gives us the deed to the home instead of foreclosing on the home, saving them from a bankruptcy. The deed in lieu saves the borrower from foreclosure and lets the borrower start anew without any additional encumbrances that a bank might place on the borrower for any shortages between the original loan amount and the price the bank sells the house for.  It also saves us, the note investor, time in that we do not have to go through the courts to foreclose.
  4. Foreclosure: This strategy is used when we cannot reach the owner of the home to suggest one of the previous options.

How does buying a note work for me as an investor?

Once you have determined how much you want to invest, we purchase notes for you. The purchase is made in both your name and ours, so that we can service them. We then do the work that needs to be done to make them profitable. On average, four to 12 months later, we sell the note.

The minimum investment is $100,000 and can be done through a self-direct IRA (SDIRA).

How does selling a note work for me as an investor?

Once the note is sold,  you are paid your profit. You can choose to either retake your principal and profit or re-invest it in another note.

How does this work for those who live in these homes?

When we are able to reach the homeowner, we offer the three solutions. All three are better than the bank's only option -- foreclosure and possibly a bankruptcy.  We help people avoid bankruptcy by doing loan modifications, short sales and deed in lieu's. Foreclosure is the final resort only when we cannot reach the homeowners, usually because they have left the home.

Image of homeowners who are glad that their mortgage issue has been resolved.