Below are frequently asked questions about distressed debt and joint ventures. Click any title below to expand the answer.

#### Why Invest in Distressed Mortgages?

#### How does the Joint Venture work?

The Joint Venture is essentially a partnership agreement between the Investor and the Manager. A Joint Venture agreement is written and executed which outlines the terms of the relationship between each party, including each party’s duties, profit splits, distributions, accounting, reporting and liquidation. The asset will be acquired in an entity that has the JV partners as the members or beneficiaries, and is usually set up as a personal property trust which provides a low cost structure that allows for anonymity of the actual owners since it is not publicly recorded. Funds are held in a reserve account managed by the Manager and expenses/income are tracked via a simple spreadsheet accessible by all parties via GoogleDocs.

#### What is your strategy for asset acquisitions?

#### What is your criteria for asset pricing?

#### How can one partner buy out the other?

**Partner Buyout:**As far as a buyout, the JV agreement has various terms in section 8.0.3, but basically either partner can propose to buy out the other for an agreed price. The purchasing party can pay all cash or 4 equal semiannual installments over a 2 year period upon mutual agreement. As far as a guideline for valuation, generally that would depend if the note is performing or non performing, the remaining term of the loan payments due and the value of the home. For an example, lets look at a note with a $50K purchase price, on a home worth $110K and the unpaid principal balance (UPB) of $100K:

- If non performing it would be the Cost Basis of the note at the time of purchase. So if we bought a note for $50K and had an additional $500 in holding costs/expenses, then the purchase value would be $50,500. In this case the manager would be buying out the partner since the partner funded the deal, or we would be selling it to a third party to liquidate at par.

- When we get the note performing then the purchase price would be the current value of the note, minus the Cost Basis (purchase cost + expenses - any income to the partner), divided by 2.

- So in the above example lets say we own the note for 15 months and started collecting $665/month in P&I payments at month #3. Of that payment, $570/mo. is the interest portion, averaged over the first year. Each party is entitled to 50% of the interest portion of the payment and the funding partner gets 100% of the principal portion.

- So, we've collected $6,840 in interest in the first 12 of 15 months of ownership. The funding partner received half of that amount, $3,420 + the full principal portion of $1,015 = $4,435. The new cost basis for the funding partner is then $50,000 + $500 (initial expenses) - $4,435 = $46,065.

- Now, what is the value of that now-performing note? In our PE fund, we us a 10% yield as our basis for valuation. On this example, with a remaining UPB of $98,985 and 348 remaining P&I payments of $665/month, the sales price for those future 348 payments at a 10% yield would be $75,346. (less any sales/transaction costs)

- The
__equity__would be the sale value minus the partner's current Cost Basis: $75,346 - $46,065 =__$29,281__

- Based upon that calculated value, then the partner buyout cost would be 50% of the equity or
__$14,640__.

- At that point the partner purchasing the asset is entitled to all of the remaining 348 term principal payments of $98,985 and interest of $132,541 or a total of $231,526!!

- If the borrower sells or refinances the loan then the remaining UPB is paid off. The profit would be a capital gain of $52,920 (UPB - Cost Basis). This would be an approx a 87% ROI

#### What markets do you actively seek investments?

- Low unemployment
- Stable economy with major long-term employers
- Strong emerging markets where equity growth is on the upswing

#### What are the possible outcomes for a NPL?

#### What is involved with due diligence?

Assets purchased will be acquired through various channels developed by us in our course of business. These channels are a result of relationships developed with resellers, brokers, asset managers and online note brokerage businesses. Our due diligence process creates a normalized mortgage file review platform whether the files are fully intact or have eroded in the secondary market over time and trading.

#### How can I participate in a Joint Venture with you?

Next>> Why Invest in Distressed Mortgages?