Larry Stevens and his daughter Lorelei Stevens started Wall Street Brokers, Inc. together in 1971 and built it into a nationwide note buyer. Despite the name, they weren’t brokers at all but institutional investors. In this interview they explain what they buy, what they won’t touch, and what they expect from the note brokers who bring them deals.
How they got into the note business
Q: Larry, how did you get into the paper business?
When I got out of the Marines in 1954 and went looking for a job, my stepfather said, “Come and work for me and I’ll teach you the discounted note business.” He had begun discounting notes during the Depression of the 1930s and pioneered the industry. After a long apprenticeship, I took over the family business.
Q: Lorelei, how did you come into the picture?
I was finishing college and wondering what to do with my life when I decided to go where the action is. I had always admired my father’s success in business and thought I might have talent in the same direction. We had a serious talk one day and decided to incorporate a new business together.
We called it Wall Street Brokers, Inc. because our office is on Seattle’s Wall Street. At first we also dealt in real estate, but we soon realized buying notes was the more profitable side. Now it’s our only business.
Selective buying and the human factor
Q: What’s the secret of your success?
Larry: Never giving up. We’ve gone through ups and downs and watched others in the business fold under the pressure, but we just keep going. We’re very selective about the notes we buy, so fewer of our deals go sour. That’s one reason we stay afloat when others sink.
Lorelei: Knowing that the paper business is both a science and an art. We keep pushing our command of the technical and legal details as far as it will go. That keeps us out of trouble.
But we also personalize each transaction to include the human factor, so we can take on more complicated or unusual notes. That widens our opportunities.
Staying alert in each transaction is also how I met my husband, Manfred, who was the payor on a problem note. The seller had not disclosed a number of troublesome features about the property, and I helped Manfred solve the problem. We got to know each other, and six months later we were married. He escaped the former Communist East Germany and deeply appreciates the freedom in America that lets him buy notes.
What kinds of notes they buy
Q: What kinds of notes are you looking for?
Larry: If note brokers would buy it with their own money, we probably would too. We buy the same kinds of notes other institutional buyers purchase, including familiar first-lien real estate notes. We have a reputation for being picky, but we’re also known for accepting unique and sophisticated transactions such as wraparounds, fractions, divorce liens and small notes.
We buy notes that are paying. We don’t buy delinquent paper. If another institution has rejected a note but it appears to be a good one, we might consider it.
Q: What is the most unusual note you buy that most others don’t?
Larry: We buy purchase-money notes from the sale of businesses, with no real estate involved. We’ve bought notes on pizza parlors, for example, and have taken assignments of chattel mortgages. In this area we are highly selective and buy only the best. We’ve bought notes from sellers who sold taverns, gas stations, laundromats, flower shops, print shops and all sorts of businesses.
Why they won’t buy partials or table-fund
Q: Do you buy partials?
Lorelei: No. Our experience with partials was so full of problems that we stopped buying them. Buying a partial number of payments on a note, for example the next 30 payments, and then giving the note back to the seller turned out to look like a high-interest loan to the seller.
We do buy fractions, which some note brokers confuse with partials. A fraction is one owner’s interest in a note owned by two or more people, for example a brother and a sister. If only the brother wants to sell, we will still buy his fraction.
Q: Do you do table funding (simultaneous closings)?
Lorelei: No. We prefer notes that are “old and cold,” with a track record of at least two or three payments already made. We don’t make loans. If it takes our money or involvement to sell the real estate and create the note, we’re deeply concerned that it’s really a high-interest loan to the payor, disguised as a note purchase from the seller.
Working with them as a note broker
Q: How does a note broker do business with you?
Larry: We don’t require applications, fees, or credit and financial reports on note brokers. We care only about the quality of the notes they present, because we’ve found no connection between the status of the note broker and the merit of the notes they bring. The deals speak for themselves.
Q: How does a note broker get a quote from you?
Larry: The minimum we need is a copy of the signed note and a completed worksheet with all the details filled in. We do our best to respond within one hour of receiving the request.
Q: What do you expect from a note broker?
Lorelei: Once our quote has been accepted, we expect the note broker to work with us until the deal is closed. We may ask detailed questions and raise important issues the broker missed. Many note brokers who first protested our scrutiny have told us they learned more from one deal with us than from all their previous experience combined.
What the best note brokers have in common
Q: What qualities do you notice in the most successful note brokers?
Larry: First of all, they aren’t allergic to hard work. They don’t give up easily, they follow up on details, and they learn from their experiences. They keep upgrading their education. The best of them develop good judgment and a sixth sense about what makes a good note.
Q: You’ve earned a good reputation for providing educational materials. Why?
Lorelei: Our goal from the beginning was to teach others what we’ve discovered over the years. We’ve done extensive research on seller financing and the discounting of seller-financed notes, and the technical details are incredible. We explain them in easy-to-read pieces, with help from many experts. It’s a real cost of doing business, but we feel it improves the entire industry.
Their view of the note business ahead
Q: What do you see for the future of the note business?
Larry: The number of seller-financed notes increases when interest rates are high, so rising rates are good for this industry. We’ve been through many economic cycles since 1971. The fascinating thing about the note business is that even in down times it offers opportunity and excitement to those who persevere. I don’t intend to retire, because I love this business too much.
Lorelei: I plan to document every important aspect of seller financing and the purchase and sale of discounted seller-financed notes, and make that information available to the public. We see a good future for the industry, and we intend to be right in the middle of it.
