How to Calculate and Negotiate Win-Win Resolutions with Gerald Lemoine

The Math Behind Win-Win Resolutions

Every resolution on a non-performing loan comes down to numbers. The borrower needs affordable terms. The investor needs an acceptable return. The gap between those two positions is where deals either get done or fall apart. The investors who close the most resolutions are not the ones with the most aggressive negotiation tactics -- they are the ones who can run the math in real time and structure terms that work for both sides.

Gerald Lemoine has been buying, modifying, and resolving distressed mortgage notes for over a decade. In this expert session, he demonstrates the financial calculator workflows he uses on a near-daily basis to evaluate deals, structure partial note sales, and calculate true returns on investments with uneven cash flows. The tools are straightforward -- an HP 10bII financial calculator (available as a phone app for around five dollars or a desktop version for fourteen dollars) -- but the applications are powerful.

Selling Partial Interests to Recapitalize

One of the most effective strategies for scaling a note portfolio is selling partial interests in your notes to passive investors. Rather than tying up all of your capital in a single deal and waiting years for the full return, you can sell a portion of the cash flow to a private investor at an agreed-upon yield, recoup your acquisition cost, and redeploy that capital into the next deal.

There are two primary ways to split a note into partial interests:

Both structures allow you to bring in outside capital without selling the entire note. The investor gets a secured, predictable return. You get your money back faster and can reinvest.

Example 1: Splitting a Payment on an Interest-Only Note

Lemoine purchased a $150,000 interest-only note secured by a property in Southern California. The note carried a 12% face rate, producing $1,500 per month in interest-only payments over a five-year term. At maturity, the full $150,000 principal balance was due as a balloon payment.

He acquired the note for $115,000 -- a 23% discount to the unpaid principal balance.

Calculating the base yield. Using the HP 10bII financial calculator with the following inputs:

• N (number of payments): 60
• PV (present value): -$115,000 (negative because it is a cash outflow)
• PMT (monthly payment): $1,500
• FV (future value): $150,000 (the balloon payoff at maturity)
• Solve for I (monthly interest rate, annualized): 19.31%

A 19% annual yield on a first mortgage in Southern California is already a strong deal. But Lemoine improved it further by selling half the payment stream to a private investor.

Structuring the partial sale. He found an investor with $75,000 in a self-directed IRA who was looking for passive income. Lemoine offered him a 9.5% return, secured by the note, with a monthly payment of $594 (half the $1,500 minus a small spread).

After receiving the $75,000 from the investor, Lemoine's net basis in the deal dropped to $40,000 ($115,000 acquisition minus $75,000 from the partial sale). His remaining cash flow was $906 per month ($1,500 total minus $594 to the investor), and his share of the balloon payoff at maturity was $75,000 (half of $150,000).

Recalculating Lemoine's yield after the partial sale:

• N: 60
• PV: -$40,000
• PMT: $906
• FV: $75,000
• Solve for I: 34.02%

By selling a partial interest at 9.5% to his investor, Lemoine nearly doubled his own annualized yield from 19.31% to 34.02% -- while simultaneously reducing his capital at risk from $115,000 to $40,000. The investor earned a secured 9.5% return from an IRA-eligible asset. Both sides won.

Example 2: Selling the Front End of a Performing Note

In a second example, Lemoine held a first mortgage in Wisconsin with an 8.25% face rate. He had purchased the non-performing note for $23,000, worked out a loan modification with the borrower, and brought it back to performing status at $521 per month over 240 months. His yield on the full note was 27%.

Needing to free up capital to buy more notes, he sold the first 60 payments to a private investor at a 9.5% yield. The calculation:

• N: 60
• I: 9.5% (annual)
• PMT: $500 (the amount paid to the investor each month)
• FV: 0
• Solve for PV: $23,807

The investor paid Lemoine $23,807 for the right to receive $500 per month for 60 months -- a 9.5% annualized return. Lemoine had paid $23,000 for the entire note, so after receiving $23,807 from the partial sale, he was $807 in the positive with zero money left in the deal. He kept the $21 monthly spread ($521 minus $500) during the first 60 months, and after month 60, the full $521 monthly payment reverted entirely to him for the remaining 180 months.

The result: Lemoine recaptured 100% of his investment plus a small profit, retained $21/month in near-term cash flow, and owned the back 180 months of a performing note on a free-and-clear cost basis.

Documenting Partial Note Sales

Partial note sales raise a natural question about legal structure and documentation. Lemoine uses a straightforward framework reviewed by his attorney:

1. Title holding trust -- The note is assigned into a trust
2. Trust agreement -- Spells out the split between the two parties (e.g., "Investor A receives the first 60 payments; Investor B receives months 61-240")
3. Security agreement -- The partial investor's payment stream is secured by the original note and mortgage

The trust agreement defines each party's rights explicitly, including what happens in the event of early payoff or borrower default. On early payoff, the partial investor receives whatever principal balance is owed per the amortization schedule at the time of payoff -- nothing more, nothing less. There is no prepayment penalty. On borrower default, Lemoine's documents allow him to pause payments to the investor while interest continues to accrue, so the investor's total entitlement is preserved. In practice, Lemoine has never missed a payment to a partial investor -- he covers any gaps from his own reserves and handles the workout or foreclosure directly.

This is not a securities offering. Lemoine's attorney confirmed there are no SEC compliance issues because selling a partial interest in a note is functionally the same as selling the entire note -- you are transferring a debt instrument, not offering an investment contract. The new payment stream is secured by the original collateral.

Calculating True Return with Uneven Cash Flows (IRR)

Most note deals do not produce perfectly even cash flows. You buy the note, pay back taxes, cover rehab costs, receive irregular payments during the workout period, and eventually resolve the loan. To calculate the actual return on investment on a deal with uneven inflows and outflows, you need the internal rate of return (IRR) function rather than a simple yield calculation.

Example 3: Memphis Note-to-Land-Contract Conversion

Lemoine purchased a note in Memphis, Tennessee for $7,500. Here is the timeline of cash flows:

After taking ownership through the foreclosure process and rehabbing the property, Lemoine sold it on a land contract (also known as a contract for deed) for $1,000 down and $494 per month for 78 months.

Using the IRR function on the HP 10bII:

The IRR function accepts cash flows entered sequentially, including the number of times each cash flow repeats. You enter each outflow as a negative number and each inflow as a positive number. After entering all the data, the calculator solves for the monthly rate of return and annualizes it.

Result: 19.61% annualized IRR.

Lemoine also demonstrated how sensitive the return is to the monthly payment amount. The buyer initially offered $350/month. At that payment level, the IRR drops to 8.86% -- less than half the return achieved at $494/month. That $144/month difference in negotiated payment swung the deal from a mediocre return to a strong one.

This is exactly why knowing how to run the numbers matters. Without a financial calculator or an equivalent tool (the XIRR function in Excel produces the same result), you have no way of knowing whether a proposed payment plan generates an acceptable return. You are negotiating blind.

Why the Math Enables Win-Win Outcomes

The financial calculator is not just a tool for maximizing investor returns -- it is the mechanism that makes win-win resolutions possible. Here is why:

You can test multiple scenarios in seconds. When a borrower proposes $350/month, you do not have to guess whether that works. You plug it in, see 8.86%, and know you need more. When you counter at $494/month, you see 19.61% and know the deal works at your target return. This speed lets you negotiate constructively rather than drawing hard lines based on gut instinct.

You can structure creative terms. Because you purchased the non-performing loan at a steep discount, you have room to offer terms that the original lender never could. A bank that originated a $150,000 loan has no margin to negotiate. An investor who bought that note for a fraction of face value can offer reduced payments, extended terms, or principal forgiveness and still earn a double-digit return. The calculator tells you exactly how much flexibility you have.

You can bring in capital partners. Selling partials at 9-10% to passive investors is only possible when you can demonstrate the exact yield they will earn, the security behind their investment, and the structure of the deal. The financial calculator produces those numbers. Without it, you are asking someone to trust your napkin math.

You can make faster decisions. Gerald Lemoine mentioned using his financial calculator on a near-daily basis for workout negotiations. That frequency is not unusual for active note investors. Every borrower conversation is a potential deal, and the ability to model a proposed resolution in real time -- on the phone, in the field, between meetings -- separates investors who close deals from those who stall.

Tools and Resources

Lemoine recommended several tools for note investors looking to build their financial calculator skills:

For foundational education on these techniques, Lemoine credits two sources: the book Invest in Debt by Jimmy Napier, and coursework from instructors Gary Johnston and Clyde Wilson. Both cover the theory and application of financial calculators in the context of real estate note investing.

Key Takeaways

The ability to calculate returns accurately is not optional for note investors -- it is the foundation of every resolution strategy. Without it, you cannot price acquisitions correctly, you cannot structure modifications that meet your return targets, you cannot sell partial interests to capital partners, and you cannot evaluate whether a borrower's proposed terms will work.

The core workflow is straightforward: acquire the note at a discount, use the financial calculator to model resolution scenarios, negotiate terms that deliver your target yield while giving the borrower an affordable path forward, and recapitalize through partial sales to redeploy capital into the next deal. Every step is driven by the numbers. The calculator does not make the decision for you, but it ensures every decision is informed.