Success Investments, a buyer of seller-financed notes, was founded in 1994 by partners Jayme Kahla and Robert Leonetti. Jayme came to the note business from a background as a CPA and real estate syndicator; Bob came from years as a creative finance instructor and mortgage lender. Together they had more than 30 years in real estate and mortgage brokerage when they gave this interview.
What a simultaneous closing is
Q: What is a simultaneous closing?
Jayme: A simultaneous closing is where there is a transfer or sale of property, and a note created between the buyer and seller is purchased by an investor at the same closing table where the real estate transaction is taking place.
Q: Why is it important for brokers and investors to learn about simultaneous closings?
Jayme: With all the people coming out of seminars, most existing notes are difficult to find. To cut down on competition, we started to focus more on buying paper right at the settlement table. When you work with this type of paper, you are working with a note you know is marketable.
Bob: It’s also a great service to the marketplace. Because of my background as a mortgage broker, I know all the programs available to home buyers. When I discovered simultaneous closings, I realized they meet a huge need. Once Realtors discover this is another tool for their toolbox, they are very excited.
Why brokers like them
Q: What is the advantage to the note broker?
The great advantage is that no one else is bidding on the paper.
There is also an opportunity for a good profit. Nine times out of 10, when the broker asks a property seller about his cash needs, the first answer is “I want all of my money.” After talking with them, the broker can usually get a specific number. The seller may need to pay off an underlying lien, pay commissions, or get enough for a down payment on a new home.
Once we know exactly what the seller needs, we can see whether to do, for example, a partial purchase, where we buy part of the paper and pass some payments back to the seller, or buy part of a balloon, or part of each payment. There are many ways to structure the deals. The main thing is finding out what the seller needs.
Bob: Simultaneous closings also make it easier to find paper. If you’re targeting private note holders by direct mail or advertising, you spend a lot of effort and money just to get one person in the door. When you talk with a group of 15 Realtors, each of them may have one, two or three scenarios where this could work for their buyers or sellers. The same applies to mortgage brokers.
It’s a matter of leveraging your time and marketing money. Instead of trying to find and buy existing notes, you buy them before they hit the market.
Three places to find simultaneous closings
Q: Specifically, how would a broker put together a simultaneous closing?
Bob: We have found three major areas to work:
- For sale by owner (FSBO) properties. Contact the owner and say something like: “Not every buyer who comes along will qualify for a conventional loan. Why not sell your home a little quicker with some creative advertising, such as ‘10% Down, Owner Will Carry, Easy Qualifying’?” When people run that ad, they get a tremendous response.
- Realtors. You’re offering them a way to sell more properties faster. If they have a buyer who doesn’t qualify for a conventional loan, you can help them find a way to do the deal instead of turning it away.
- Mortgage brokers. Make it clear you are not competing with them. You’re offering a service and a way to close deals that falls outside the normal realm of mortgage brokers.
How the broker gets paid
Q: Doesn’t the note seller see what the note broker makes at the settlement table?
Jayme: No. The sale of the property requires a HUD closing statement. The sale of the note does not appear on it; it covers only the sale of the property. What does show up is that the seller is carrying back the full amount of the note. That is all that is required.
The second transaction is the sale of the note, and there is no closing statement for it. As investors, we wire the settlement agent what needs to go to the seller plus any closing costs we’ve agreed to pay. We send the broker’s check directly to him. It does not go to the closing table, and no one knows how much he makes.
Q: Suppose a broker builds referral sources, such as Realtors and mortgage brokers, who send him notes regularly. Once the investor learns who those sources are, what stops him from dealing with them directly and cutting the broker out?
Bob: We can’t speak for other investors, but we have a very strong policy that our brokers are our clients. We cannot afford to go behind their backs. Jayme has a broker-client, a cotton farmer in Lubbock, Texas, who calls us from his tractor out in the field. Jayme, how long has Bryan been with us?
Jayme: About five years. Bryan found a seller with a large number of notes. After Bryan brokered the first couple to us, the seller, Tommy, contacted us to sell the rest directly, figuring he’d get more money. I told him that wasn’t the case: we would not pay him any more than he’d get through his broker. He now deals with us directly, but any time we close a deal with him, we pay Bryan too, even though he wasn’t involved.
Selling points for your referral sources
Q: What are the major selling points a broker should make to referral sources?
Bob: First, remind them that traditional lending has many underwriting requirements that simultaneous closing underwriters don’t look at:
- Fannie Mae ratios (at the time of this interview) required that the house payment plus revolving monthly debt not exceed 38% of gross monthly income. Simultaneous closing underwriters don’t use that test.
- Traditional underwriters want to know where the down payment came from. Simultaneous closing underwriters don’t care.
- Traditional underwriters want the applicant in the same job for at least two years, and are hesitant with borrowers self-employed for less than that. Simultaneous closing underwriters don’t have that requirement.
In addition, the buyer saves a great deal in closing costs. The average closing costs on a $100,000 house purchase using a conventional loan are about $4,000. The same transaction using seller financing in a simultaneous closing cost about $900.
| Closing on a $100,000 purchase | Approximate closing costs |
|---|---|
| Conventional loan | $4,000 |
| Seller financing, simultaneous closing | $900 |
Q: How do you want brokers to work with you?
Bob: We send brokers a worksheet we developed for simultaneous closings. It has space for the needs of the buyer, the seller and the broker. We’ll also help people negotiate the transaction.
