Essential Guide



by Lorelei Stevens

“If I had read her book about 6 years earlier, I would be $200,000 happier.”
— Rick Cogswell, Katrick & Associates, LTD, buyer of non- and sub-performing notes


What Others Have Said About Lorelei’s Legal Lessons:

“Most of the essential information necessary to successfully engage in the note business is set forth in this book. Every person in the business or considering getting into the business should find this work invaluable.
Bruce J. Blohowiak, J.D.
Former Vice President, General Counsel
Metropolitan Mortgage & Securities

“This is exactly the kind of information necessary to inform the public about an investment area often misunderstood, but with great potential for profit.”
Harold B. Coe, J.D.
Senior Partner, Law Firm of Coe, Nordwall, Liebman & Friend
Seattle, WA

“Most of the subjects have not been covered in any other publication of which I am aware. I believe every note buyer should have a copy of Lorelei’s book and should refer to it often. I know I will.”
Walter L. Poser
President, Poser Investments, Inc.
Arcadia, CA

“A note buyer’s bible! If you buy notes or are thinking about buying notes, this book is critical to your financial health and well being! Contains valuable insights based on research and knowledge coupled with years of practical experience.

“Don’t buy any notes until you have given consideration to the gems of wisdom contained in Lorelei’s Legal Lessons…packed with great practical information and insights!…an essential tool in the note buyer’s toolbox…helps you avoid the rampant pitfalls…

“This book tackles difficult legal concepts and communicates them in a language and style which the average note buyer can understand.”
Jerry James
Attorney & Note Buyer (20 Years Experience)
Salt Lake City, UT

“You can tell that Lorelei’s Legal Lessons speaks from experience. Only old-time professional note buyers would know some of the information contained in her book. I find it condensed and easy to read. If I were just getting started in the note business, I would memorize every page.

Lorelei’s Legal Lessons makes you realize there is a tremendous amount of information you should know about note purchasing. A great yield is only as good as your ability to collect the payments and guard your backside.

I will use Lorelei’s book to help train two new contract buyers we have just hired.”
— Allen Myers
President, Private Mortgage Bankers
Houston, TX

“Well, it didn’t take me long to uncover something I wasn’t aware of. By the second random chapter I read, I learned not to close on any notes that the current payment due hasn’t arrived yet. I’m looking forward to more insights! Well done, Lorelei.”
— Hank Harenberg
President, Capital Concepts, Inc.
Albuquerque, NM

“Important perspectives from an experienced professional…”
Bill Broadbent, Owner
Broadbent and Arnett Realty
Co-author: Owner Will Carry:  How To Take Back A Note Or Mortgage Without Being Taken
San Luis Obispo, CA

“An exceptional display of instructional material for note brokers and note buyers, whether novice or expert. This business is a complicated one with a multitude of pitfalls and obstacles if one is not careful and well informed. This manual provides practical solutions and expert advice when faced with difficult business development problems.”
John Zarrillo
Former Vice President
The Associates Financial Services
Pittsburgh, PA

“You are simply not in the note business if you have not read and understood the important facts in this book. While the note business is lucrative, it is fraught with legal potholes; and you can easily stumble without the expert guidance of Lorelei Stevens.”
Jon Richards
Former Publisher, The NoteWorthy Newsletter
San Francisco, CA

“Lorelei Stevens has written a book that should be required reading for everyone who is or is considering becoming a note investor or broker. She examines the vital issues most everyone else is afraid to touch in a clear, concise manner. This is a great contribution to the industry.”
W. J. Mencarow
President and Editor
The Paper Source Journal

“To say the least…I am extremely proud of my daughter, Lorelei, and her educational contributions to our industry.”
— Larry L. Stevens
Wall Street Brokers, Inc.


Or call 1-800-542-2270 to use a credit card or send a check.

A copy shop can print and bind it for you for about $10.00-$15.00.

About Lorelei Stevens

Lorelei Stevens, real estate broker and discounted note broker/buyer is president of Wall Street Brokers, Inc. in Seattle, Washington. She is the daughter of Larry L. Stevens and is the third generation of Stevens’ in the paper business. Since 1971, she has worked her entire adult life negotiating millions of dollars of paper and is a nationally-recognized expert.

She has taught several legal continuing education seminars and has written numerous articles for legal, real estate and other professional organizations on the subjects of seller-financing, managing, reinforcing and buying paper.

Lorelei’s intense experience in teaching creative negotiations, legal knowledge and investigative techniques have been the ingredients of her success.

The Book’s Introduction

I started in the note business in 1971. My father, Larry L. Stevens, taught me the basics by using me as his secretary while I was in college. His father began the family tradition during the depression of the 1930’s buying savings account passbooks for ten cents on the

Many people ask me what it’s like being a woman in a business dominated by men. I have found that gender really makes no difference in the note business. Success is based entirely upon skill, ability and desire. But the truth is that I have always found it fun being the only woman in the conference room when lawyers and clients get together to negotiate deals.

The main thing I noticed about being a woman in this business is that people tend to underestimate me. What appears to be a disadvantage can be an advantage. When clients don’t think I know anything because I am a woman, I often end up appearing more impressive when my expertise prevails. Once people get to know me, we usually end up with a long and mutually satisfying business relationship. Many of my clients today are the same people who walked in the office in the early 70s and met me for the first time. To new clients, I am soon just their note expert, not a woman note expert.

Simpler Times

Three decades ago, when I first started, the business was much simpler. There was less paperwork, things got done faster and everyone was less sophisticated. We didn’t even have financial calculators. We had to use amortization tables, do many hand calculations and sometimes just guess.

As we grew, I made the usual mistakes and learned some things the hard way. The two greatest mistakes I made while learning were: (1) not being educated about the law and (2) trusting people too much. I remedied my lack of legal education by reading law books, attending
seminars and talking with lawyers and other informed professionals on specific problems as they came up.

Learning how much to trust people was another matter. I figured out two things by experience. Sometimes people didn’t understand what they were telling me. So without purposely trying to lead me astray, they gave me wrong information. Others intentionally misrepresented the facts that materially affected a deal in progress.

I learned, first and foremost, to obtain back-up documents from other sources. This protected me from unethical people and at the same time protected me from honest mistakes. The most important skill I developed as my business grew was to ask the right questions. So much of the right answer depends on asking the right question. A note expert cannot be too careful in framing inquiries properly.

Three Rules For Success

Now that my business is mature, I can state three simple rules for prospering in the note business. First, it doesn’t make any difference
whether you are a man or woman; you have to master the basic skill of the business. Getting clients accustomed to dealing with a woman as a competent expert is just another part of the job. A man has to work at gaining the confidence of clients just as much as a woman does. A man has to perform without mistakes, over time, just the same as a woman does.

I have found no insurmountable obstacle in being a woman in this male dominated world. In fact, I rather enjoy my position.


The second rule for success: Do your homework. Check out your deals when they come in and check them out thoroughly. People are usually in a hurry to get money and that old cliché, “haste makes waste,” is really true. Take the time and put forth the effort that’s necessary to do a good job on every deal. Don’t worry about losing a deal because a competitor claims it can be done even faster. You can do it fast and right.

The third rule: Don’t give up. There have been times I’ve felt like getting out of the business and finding something easier to do. But anybody can do that! Running away from difficulty is just not my nature. In the note business, there’s always something! Get used to
that fact and have fun with your daily challenges.

To those who are able to rise to these challenges, the rewards are great! There is no limit to the amount of money you can make buying and
selling notes. Just look at the financial success of those who do it right. It is not only your personal financial gains that matter, but
also the good feeling of being able to provide a valuable service to the financial community.

This is my personal philosophy as the result of many years in the note business.



Or call 1-800-542-2270 to use a credit card or send a check.


A copy shop can print and bind it for you for about $10.00-$15.00.

Table Of Contents:

Table Of Contents

Forward xii

About Lorelei Stevens xiv

Introduction 1

Simpler Times 1

Three Rules For Success 2

Perseverance 2

Chapter 1

Happy Holders 3

Should You Accept A Copy? 3

Four Reasons For Being The Legal Holder 3

To Resell The Note 4

What May Not Work 4

What Is A Proper Endorsement? 4

Tips on Fraudulent Copies 5

Chapter 2

Recourse Revealed 6

What’s An Endorsement? 6

Failing to Discuss Recourse 7

Chapter 3

Favored Fractions 8

Sources of Fractional Notes 8

Endorsements of Fractional Interests 8

Partial Assignment 9

Without Recourse 9

Problem of Possession 9

Chapter 4

Beautiful Balances 11

Your Own Computation 11

The Seller 11

Servicing Agent 12

Payor 12

Summary 13

Chapter 5

Essential Estoppels 14

Why Do I Need An Estoppel Letter? 14

What Should Be Included In An Estoppel Letter? 14

What Supportive Documents Do I Need? 15

How Do I Get An Estoppel Letter? 15

When Should I Get An Estoppel Letter Signed? 15

Should The Estoppel Letter Be Notarized? 16

What If The Payor Won’t Sign The Estoppel Letter? 16

Should I Buy The Note Without An Estoppel Letter?.16

Why Don’t Some Note Buyers Ask For An Estoppel Letter? 17

Conclusion 18

Chapter 6

Possible Payors 19

Payor’s Incentive 19

Types of Possible Payors 19

1. The Maker 19

2. Assumption of Note 20

3. “Subject To” 20

4. Guarantor 20

5. Endorser With Recourse 21

6. Junior Lien Holders 21

Special Instances of No Personal Liability: Caution! 22

What You Can Do 22

Pros And Cons Of Giving Notice 23

Summary 23

Chapter 7

Silent Seconds 24

High Risk Seconds 24

Fraud and Financing 25

How To Protect Yourself 25

Right or Wrong? 25

Chapter 8

Disabled Delinquents 27

Dangers of Delinquent Notes 28

Typical Arguments 28

Chapter 9

Understanding Usury 29

Potential Problems With Usury 29

Selling The Real Estate And The Note Simultaneously 30

Amending The Note 30

Usury Problems With The Seller 30

Partial Purchase 31

Chapter 10

Dissecting Down Payments 32

Amount Of Down Payment 32

Loan-To-Value Ratio 32

Investment-To-Value 33

Small Down Payment 33

Larger Than Normal Down Payment 34

Quality Of Down Payment 34

Types Of Down Payments 34

Cash 34

Earned or Saved. 35

Gift 35

Paid By Another. 35

Borrowed Down 35

Illegal Down 35

Real Estate Equity Exchange 35

“Junior” Notes 36

Trade for Goods or Services 36

Rent to Own Option 36

Nothing Down 36

How To Verify The Down Payment 36

Sources Used To Verify 37

Purchaser’s Closing Statement 37

Extra Co-operative Payor 37

Outside Of Escrow 37

Seller’s Closing Statement 38

Canceled Checks 38

Indirect Sources 39

Conversation with Seller and Payor 39

Credit Report 39

Value of Property 39

Research the Corporation or Partnership 39

Beware .40

Summary 41

Chapter 11

Proof Of Payments 42

Types of Payment Records 42

How Do You Know If A Receivable Is A Good Deal? 43

Details About Self-Collected Records 43

Payor’s Canceled Checks 43

Seller’s Bank Statements 44

Seller’s Income Tax Returns 44

Written Payment Record or Payment Book 44

Amortization Schedule 44

Notarized Affidavit 44

Receipt Book 45

Letter from Third Party 45

No Records 45

Conclusion 45

Chapter 12

Deceptive Delinquents 46

Technically, The Note Could Be Delinquent. 46

Prove In Court 47

Chapter 13

Dealing With Defaults 48

Creative Problem Solving 48

Do Nothing 49

Sell Out 49

Legal Remedies 49

Sue On The Note 49

In-Court Foreclosure 50

Out-of-Court Foreclosure 51

Deed In Lieu Of Foreclosure 51

Bankruptcy 52

Summary 52

Chapter 14

Paying The Payor 53

Consideration To The Payor 53

Snags 54

Dealing With Snags 54

Co-operation 54

Chapter 15

Seeking Social Security Numbers 56

Where To Look 56

The Note 56

The Seller 56

The Payor 56

The Servicing Agent 57

The Fire/Hazard Insurance Agent 57

The Real Estate Sale Closer 57

Title Insurance Company 57

The Senior Lien 57

Real Estate Agent 57

Voter Registration Records 57

The UCC Financing Statement 57

Strategies 58

Conclusion 58

Chapter 16

Authorized Access 59

Who Requires Signed Authorization? 59

Which Form Should I Use? 59

When Should I Get the Authorization Signed? 60

How Many Authorization Forms Do I Need? 60

Should the Authorization be Dated? 60

Should the Source’s Name Be Filled In Before the Signature? 61

Can I Use a Fax Of The Authorization? 61

What If I Can’t Get Signed Authorization? 61

Summary 62

Permission To Provide Information 62

Chapter 17

Significant Seniors 63

Protecting Your Second Mortgage 63

Four Things About Senior Notes 64

Technical Considerations 65

How Junior Liens Arise 66

Identifying Senior Lien Holders 66

Pitfalls 67

Due-On-Sale Clause 67

How to Extract the Information 68

Your First Step 69

Payor Assumes Seller’s Second Lien Or Took “Subject To” 69

Payor Got A New Loan 69

Wraparound 69

Taxes and Assessments 70

Stumbling Blocks 70

Un-cooperative Payors 70

Uninterested Senior Lien Holders 70

Need Written Permission. 70

Not Motivated 70

Incomplete Information 70

Fees Charged 70

Undependable Sellers 70

Senior Estoppel Certificate 71

Notification To Senior Lien Holder 71

Conclusion 71


Or call 1-800-542-2270 to use a credit card or send a check.

A copy shop can print and bind it for you for about $10.00-$15.00.