Most note brokers stick to real estate paper. Randall Simoes built Prosperity Partners on almost everything else: lottery winnings, structured settlements and stranger cash flows that others said couldn’t be bought. In this interview he explains what non-traditional paper looks like, how his company dealt with payments that can’t normally be assigned, and why “it can’t be done” can be a signal of opportunity.
What counts as non-traditional paper
Q: Randall, what makes Prosperity Partners different?
We are in the business of investing in unusual cash flows. We buy almost any type of cash flow other than discounted mortgages.
Q: What are some examples?
Our business has been built on lottery winnings and structured settlements, which come from personal injury lawsuits. More unusual cash flows include gambling jackpots, utility paper and book royalties.
For example, we recently had a chance to buy a cash flow involving a major author being paid royalties by one of the big publishing houses. Because the publisher is a public company with open books, it was a definable risk. In short, we are interested in anything that looks like a state obligation or an annuity where we can define the payor.
Q: What is utility paper?
Occasionally we find someone holding paper secured by an electric power facility. Their income is based on the amount of electricity the facility generates.
Buying payments that “can’t be assigned”
Q: Are these cash flows generally assignable?
With cash flows that involve companies and contracts, like book royalties, we usually don’t run into a problem. But annuities, gambling winnings and contest prizes generally prohibit assignment. Our whole company is built on product that is “non-assignable.” Lottery winnings are the prime example: almost none can be assigned without a court order. About 95% of structured settlements are non-assignable.
Q: Should a broker ignore non-assignable paper, then?
No. We have a team of law firms around the country that work exclusively for us in that area. With a non-assignable lottery prize, for example, we petition the court for an order making it assignable. Then we serve that order on the lottery commission and push it to comply.
Some states comply and some appeal the order. In some states we win about half the time; in others we win every time. Overall we usually win, and the success rate is growing.
How brokers can find unusual cash flows
Q: How can brokers find these unusual cash flows?
Keep an open mind, and expand your thinking beyond mortgage paper. Most of what brokers bring us, they simply stumbled onto by paying attention to their market.
We also have people who are glad to help brokers in many areas, whether that’s developing marketing programs, negotiating with customers or closing transactions. Our whole company is made up of people with a vested interest in brokers being successful.
Q: Is this profitable for brokers?
It can be, but of course it takes work. Someone willing to focus and put time into it can add to their income just by paying attention to their own marketplace. There may be relatively few viable lottery winners, but the profit per transaction can be far higher than on discounted mortgages.
The potential volume is also large. Take structured settlements: there are potentially thousands of transactions a year, but only a small percentage of that business ever gets done. At the time of this interview, there were probably no more than 25 brokers seriously active in that market.
Building a business on what “can’t be done”
Q: Any words of advice for brokers?
There’s an important lesson in our company’s story. We started in 1993 and built the whole business on what people said couldn’t be done. When people said “you can’t do that,” we saw an untapped opportunity.
When we said we would buy lottery winnings, almost everybody said things like “you’re crazy” and “why are you trying to do that? It doesn’t make sense.” At the time of this interview, our sales volume was at least five times the previous year’s, and our staff had grown from six to 30.
In summary, you can make a living on what is proven to work, but you can find much greater success by focusing on what “can’t be done.”
