New bank rules unlock HUGE new opportunities in Discounted Note Workouts and Commercial Loan Mods Copyright © 2011 Calworth Glenford LLC

Discounted Note Workouts Bob works with us negotiating DNWs We aim for substantial principal reductions Then we get a lender to buy the note from the bank with a spread for us Bob’s team has done hundreds of this type of deal and helped many of our students He is creator with me of Distressed Property Formula

Big News Effective June 15, 2011 FASB affects how banks must report their profits and losses A new rule going into effect will have huge repercussions for the commercial loan mod business We’ll review the business, the new rules, and some basics of making money TODAY in this

Let’s review the fundamentals of the workout business Sales of commercial are off 90% from the 2007 level Prices are down 40% Banks are insolvent

Courtesy Foresight Analytics

What do the new regulations mean? Banks don’t want “TDRs” on their books If the borrower’s “new deal” is or may be worse than the “existing deal” = TDR When and how this hits the bank’s financial statements What the banks will want to do about it instead of having yet another TDR on their books

Four Choices Lenders Face… Loan mod Property is sold (usually a short sale) Bank forecloses and it becomes an REO Lender sells off the note at a discount

Who can get what? Discounted Note Workout – Must qualify for a new loan – Must have a lender willing to make that loan in order to buy the note – Lender must be willing to sell at a large discount allowing a profit for us – We make our money on the spread Commercial Loan Mod – Can’t pay, can’t refi – Not a result of constant mismanagement or something that is the borrower’s fault – Must pay a fee for the mod – a success fee

The Key Rule with Commercial Yes, there are personal guarantees Yes, there is recourse But, the key rule with commercial: The lender looks to the property’s cash flow to get paid back.

Commercial Loan Modification – Lower interest rates on the loan balance – Recasting the term of the loan – Rescheduling or eliminating a Balloon – Reducing or eliminating penalties and fees – Forbearance – Interest only – In short any “modification” of the original terms and conditions of the mortgage!

Discounted Note Workouts All the above and… A reduced principal… And a new loan with better terms

How does a deal work? Find the deal Qualify the deal Put a plan together Get up front fee and escrowed success fee Prepare book Negotiate with the lender Close the deal Get paid success fee

How you get paid Up front fee Success fee in escrow Success can mean many things Requires 1 to 6 months typically You can keep the money yourself and do the work You can partner with someone else like our back office and we will do all the work

Commercial Loan Mods Are Appropriate When: Borrower won’t qualify for a Discounted Note Workout Situation has made it impossible to make the payments Can’t refinance and the loan is due / coming due This is a $2 trillion problem

How to get business Commercial real estate agents Lawyers Accountants Networking at clubs and meetings Direct mail Leaving messages and getting calls back (no- selling sales method)

Example Deals KFC Franchisee

Ignore What The Bank Says At First “We don’t modify” “We don’t talk to third parties” Sent “notice of appearance” and copy of authorization Special servicer sent back everything we need