Attn’y Docket No.: 8081.002P
1
PROVISIONAL APPLICATION FOR
UNITED STATES LETTERS PATENT
of
JOHN RAGHU
for
SYSTEM AND METHOD FOR STRUCTURING FINANCING OF REAL
PROPERTY
Attorney Docket No. 8081.002
TIMOTHY R. DEWITT
24IP LAW GROUP USA, PLLC
600 CAMERON STREET, STE. 408
ALEXANDRIA, VA 22314
Attn’y Docket No.: 8081.002P
1
SYSTEM AND METHOD FOR STRUCTURING FINANCING OF REAL PROPERTY
INVENTOR: JOHN RAGHU
CROSS-REFERENCE TO RELATED APPLICATIONS
[0001] None.
STATEMENT REGARDING FEDERALLY
SPONSORED RESEARCH OR DEVELOPMENT
[0002] None.
BACKGROUND OF THE INVENTION
Field Of The Invention
[0003] The present invention relates generally to the financing of real property, and more
specifically to systems and methods for financing or refinancing real property to provide
lenders with flexibility in times of decreasing property values.
Brief Description Of The Related Art
[0004] Many systems and methods for financing real property, i.e., providing mortgages,
have been developed and used. The typical arrangement under these systems and
methods is for a lender to loan money to a borrower who agrees to pay back the loan over
a period of time with interest with the loan being secured by the real property. The
borrower typically is required to make period payments of principal and interest, or in
some instances just interest, to the lender until the entire loan is paid off. A variety of
different types of loans. Standard loans in which the borrows simply pays back the
principal with interest over time may be, for example, fixed rate mortgages, adjustable
Attn’y Docket No.: 8081.002P
2
rate mortgages (ARM), graduated payment mortgages (GPM), or price level adjusted
mortgages (PLAM).
[0005] During time in which home values have appreciated, additional types of
mortgages have been developed in which a borrower pays the lender some amount less
than the principal plus interest and the lender shares in any appreciation of the property.
These types of mortgages are often referred to as “shared appreciation mortgages”
(SAM). An examples of such a loan is disclosed in U.S. Patent No. 6,345,262, entitled
“System and Method for Implementing a Mortgage Plan,” in which a borrower does not
pay interest on the principal of a mortgage in exchange for sharing any appreciation of
the property with the lender. Another example is disclosed in U.S. Patent Application
Publication No. 2008/0189204, entitled “Method and Apparatus for Providing Home
Equity Financing without Interest Payments,” in which a borrower does not make any
period payments to the lender (referred to a “equity financing provider”). Instead the
lender receives payment only when the “equity financing rights are redeemed,” such as
when the property is sold. Also, under that system, an existing property owner can raise
capital from the equity financing provider in exchange for sharing a future change in the
property value rather than obtaining a second mortgage. Still another example is
disclosed in U.S. Patent Application Publication No. 2008/0162336, entitled “Shared
Appreciation Mortgage Loan System and Method,” in which a lender is provided with a
means to target a minimum rate of return along with the possibility of greater
compensation in terms of shared appreciation. Each of these systems and methods may
be practical and even desirable in times of appreciating property values, but each suffers
from significant drawbacks in times when property values are decreasing or stagnant.
Attn’y Docket No.: 8081.002P
3
[0006] A variety of systems and methods also have been disclosed for reducing mortgage
interest rates and guaranty insurance premiums. For example, U.S. Patent Application
Publication No. 2008/0120226 discloses a system and method for automatically
monitoring the availability or desirability of refinancing a mortgage to reduce the
borrowers payments. In another example, U.S. Patent No. 6,671,677 discloses a system
and method for reducing a mortgage interest rate and mortgage guaranty insurance
premiums associate with a mortgage by financing discount points into the mortgage plan.
[0007] Another type of mortgage system and method is disclosed in U.S. Patent No.
6,269,347, which discloses the application of a borrowers payments to principal first with
a deferment of interest payment to allow the borrower to build equity in the proper and at
the same time permit the lender to defer the receipt of interest income for a number of
years.
[0008] While each of the these prior systems and methods may have applicability and
usefulness in the particular circumstances for which it was conceived, none of these
provide lenders flexibility in circumstances in which a property value has decreased, the
borrow is having difficulty making payments on the loan, and the lender needs to write
down a portion of the loan or write off interest.
SUMMARY OF THE INVENTION
[0009] In a preferred embodiment, the present invention is a method for restructuring a
reference loan. The method comprises the steps of dividing said reference loan into a
first loan and a second loan, wherein said first loan has a first principal amount and said
second loan has a second principal amount, selecting a first interest rate for said first
loan, selecting a second interest rate for said second loan, selecting a first repayment term
Attn’y Docket No.: 8081.002P
4
for said first loan and a second repayment term for said second loan, said first repayment
term being shorter than said second repayment term, calculating a first repayment
schedule with respect to said first loan over the duration of the first repayment term,
deferring repayment of said second principal amount of said second loan during said first
repayment term, and writing off interest on said second loan during said first repayment
term. The interest rates on the first and second loans may be the same or different. The
repayment term of the second loan be the same as the repayment term of the reference
loan or may be different. The step of calculating a first repayment schedule may
comprise amortizing said first principal amount over the first repayment term, and
determining interest on the first principal amount over the first repayment term. The step
of calculating a first repayment schedule may further comprise applying a down payment
amount to said first principal amount prior to amortizing said first principal amount over
the first repayment term. The down payment may be made by a lender, a government
entity such as the federal government, by a borrower, or by any other entity. In one
embodiment, the first principal amount is substantially less than the second principal
amount, but it is not necessary for the invention that it be so.
[0010] The method may further comprise the step of calculating a second repayment
schedule for said second loan, wherein said second repayment schedule starts after the
end of the first repayment term and said second repayment schedule comprises repayment
of said second principal amount and interest on said second principal amount over the
remainder of the second repayment term. The step of calculating a second repayment
schedule comprises amortizing said second principal amount over a portion of said
second repayment term remaining after the end of the first repayment term, and
Attn’y Docket No.: 8081.002P
5
determining interest on said second principal amount over said remaining portion of said
second repayment term. The step of calculating a second repayment schedule may
further comprise applying a second down payment amount to said second principal
amount prior to amortizing said second principal amount. The down payment may be
made by a lender, a government entity, a borrower, or by any other entity. .
[0011] Still other aspects, features, and advantages of the present invention are readily
apparent from the following detailed description, simply by illustrating a preferable
embodiments and implementations. The present invention is also capable of other and
different embodiments and its several details can be modified in various obvious respects,
all without departing from the spirit and scope of the present invention. Accordingly, the
drawings and descriptions are to be regarded as illustrative in nature, and not as
restrictive. Additional objects and advantages of the invention will be set forth in part in
the description which follows and in part will be obvious from the description, or may be
learned by practice of the invention.
BRIEF DESCRIPTION OF THE DRAWINGS
[0012] For a more complete understanding of the present invention and the advantages
thereof, reference is now made to the following description and the accompanying
drawings, in which:
[0013] Fig. 1 is a flow chart illustrating a method of a preferred embodiment of the
present invention.
[0014] Fig. 2(a) is a table illustrating an exemplary reference loan in an embodiment of
the present invention.
Attn’y Docket No.: 8081.002P
6
[0015] Fig. 2(b) is a table illustrating another exemplary reference loan in an
embodiment of the present invention.
[0016] Fig. 2(c) is a table illustrating the resulting first and second loans in a preferred
embodiment of the present invention and illustrating the benefits of the present invention.
DETAILED DESCRIPTION OF THE PREFERRED EMBODIMENTS
[0017] Due to historical increases in real property values, financiers of real property have
often enjoyed the benefits of receiving interest on loans with only minor risk of loss of
principal. In the event a borrower becomes unable to make payments on the loan, the
lender could foreclose on the property and, due to increases in the value of the property,
sell the property above, at, or near the amount owed on the loan. A variety of factors,
such as the loosening of lending laws, increasing interest rates, and decreasing values of
real property, however, have created great difficulties for lenders in present times. With
the recent prevalence of adjustable rate mortgages, recent increases in interest rates have
left many property owners unable pay the increased monthly payments associated with
their mortgages. At the same time, decreasing market values of real property have left
many of those same homeowners with little or no equity in their property. A loan in such
a situation is referred to herein as a “troubled loan.” When the borrower fails to make the
required monthly payments on the loan, the typical recourse for the lender is to foreclose
on the property and attempt to sell the property. In times of decreasing market values of
property and times of slow real estate markets, lenders face great difficulties in re-selling
foreclosed properties. When a lender forecloses on a property and then is unable to sell
the property, they often face large losses if a foreclosed home is left empty for relatively
Attn’y Docket No.: 8081.002P
7
long period of time and/or if the former borrower leaves the property in poor condition or
even damages the property.
[0018] The present invention provides a new system and method for restructuring or
refinancing a loan to provide a lender with increased flexibility with respect to writing off
principal or interest, keeping the original borrower in the home, and thereby avoiding
much larger losses that may be associated with a foreclosure or forced sale of real
property. The present invention puts the lender in a position such that is may provide the
borrower with a reduced monthly payment to permit the borrower to retain ownership of
the property, provide the borrower with a substantial reduction in the principal of the loan
over a relatively short period of time (that is, relative to the typical 15, 20 or 30 term of a
mortgage), and permit the lender to categorize its loss as a write-off of interest rather than
a write-off of principal.
[0019] A presently preferred embodiment of the present invention will be described with
reference to Figures 1 and 2(a)-(c). As shown in Fig. 1, a lender identifies a troubled loan
(step 110) that is appropriate for restructuring or refinancing. Such an appropriate loan
may be, for example, one in which the borrower has steady income, sufficient income to
make reduced monthly payments, or potential for future income to justify the mortgage.
While the preferred embodiment is described with respect to a “troubled loan,” the
present invention may be used with respect to any loan for which the benefits of the
present invention would be desirable to the lender. Such a loan may more generically be
referred to as a reference loan.
[0020] Once the lender identifies a reference loan, the loan is divided into two loans (step
120), a first loan having a relatively short repayment period (such as three to five years),
Attn’y Docket No.: 8081.002P
8
and a second loan having a more typical repayment period (such as 15, 20 or 30 years).
The principal amounts of the first and second loans are determined by numerous factors,
including but not limited to the borrower’s income or ability make monthly payments, the
availability of financial assistance in the form of a down payment or subsidy, prevailing
interest rates, etc. Typically, the principal amount of the first loan will be less than the
amount of the second loan, but that is not necessarily so. In the example shown in Figs.
2(a)-(b), the principal amount of the reference loan is $200,000. the term of that
reference loan may be, for example, 30 years as shown in Fig. 2(a) or 20 years as shown
in Fig. 2(b).
[0021] As shown in Fig. 2(c), the reference loan in the example is divided into a first loan
with a principal amount of $50,000 and a second loan with a principal amount of
$150,000. The interest rates on both the first and second loans in this example is set at
6.5% (step 130), which is the same as the interest rate of the reference loan shown in Fig.
2(a). The repayment term of the first loan is set at 4 years (step 140). At this point, a
determination is made as to whether any subsidy or down payment is available (step
150). A subsidy or down payment may be available, for example, through the federal,
state or local government, through the lender, or from elsewhere. The subsidy or down
payment may or may not be a write-off of some portion of the principal by the lender. If
a subsidy or down payment is available, that amount is applied to the principal of the first
loan (step 152) and the repayment schedule is calculated for the first loan (step 160). If
no down payment or subsidy is available, the repayment schedule for the first loan is
similarly calculated (step 160).
Attn’y Docket No.: 8081.002P
9
[0022] During the term of the first loan, repayment of the principal on the second loan is
deferred (step 170). Also during the term of the first loan, some or all of the interest on
the second loan is written off by the lender (step 180). As shown in Fig. 2(c), this results
in substantially reduced monthly payments for the borrower. The monthly payment for
the borrower during the term of the first loan in the example shown in Fig. 2(c) is only
$729.76, compared to a monthly payment of $1,148.66 for the reference loan shown in
Fig. 2(a). Also, at the end of the 4 year term of the first loan, the total principal owed by
the borrower in this example has been reduced from $200,000 to $150,000. When the
borrower beings repayment of the second loan at the end of the 4-year repayment of the
first loan, the borrowers monthly payments will increase to $1,008.68, which is still
roughly ten percent lower than the $1,148.66 monthly payment on the reference loan.
The reduction in the monthly payment is even more significant when compared to the
reference loan shown in Fig. 2(b), which had only 20 years remaining.
[0023] The present invention may be implemented as a system using a computer and a
database in which loan information such as loan amounts, interest rates, repayment terms,
borrower data, etc. are obtained by the computer from the database. Using all of this
information, the computer system identifies mortgages that are suited for restructuring or
refinancing in accordance with the present invention. Once a suitable mortgage is
identified, the computer system produces recommended values for the principal amounts
of the first and second loans, the terms of the first and second loans, and/or the interest
rates for the first and second loans and calculates repayment schedules for the first and
second loans. In various embodiments, the principal amounts, interest rates, repayment
terms etc. may be retrieved form the database or input into the computer by a user.
Attn’y Docket No.: 8081.002P
10
[0024] The foregoing description of the preferred embodiment of the invention has been
presented for purposes of illustration and description. It is not intended to be exhaustive
or to limit the invention to the precise form disclosed, and modifications and variations
are possible in light of the above teachings or may be acquired from practice of the
invention. The embodiment was chosen and described in order to explain the principles
of the invention and its practical application to enable one skilled in the art to utilize the
invention in various embodiments as are suited to the particular use contemplated. It is
intended that the scope of the invention be defined by the claims appended hereto, and
their equivalents. The entirety of each of the aforementioned documents is incorporated
by reference herein.
Attn’y Docket No.: 8081.002P
11
CLAIMS
What is claimed is:
1. A method for restructuring a reference loan, comprising the steps of:
dividing said reference loan into a first loan and a second loan, wherein said first
loan has a first principal amount and said second loan has a second principal amount;
selecting a first interest rate for said first loan;
selecting a second interest rate for said second loan;
selecting a first repayment term for said first loan and a second repayment term
for said second loan, said first repayment term being shorter than said second repayment
term;
calculating a first repayment schedule with respect to said first loan over the
duration of the first repayment term;
deferring repayment of said second principal amount of said second loan during
said first repayment term; and
writing off interest on said second loan during said first repayment term.
2. A method for restructuring a reference loan in accordance with claim 1,
wherein said step of calculating a first repayment schedule comprises amortizing said
first principal amount over the first repayment term, and determining interest on the first
principal amount over the first repayment term.
3. A method for restructuring a reference loan in accordance with claim 2,
wherein said step of calculating a first repayment schedule further comprises applying a
down payment amount to said first principal amount prior to amortizing said first
principal amount over the first repayment term.
Attn’y Docket No.: 8081.002P
12
4. A method for restructuring a reference loan in accordance with claim 3,
wherein said step of applying a down payment amount to said first principal amount
comprises applying a down payment made by a government entity.
5. A method for restructuring a reference loan in accordance with claim 3,
wherein said step of applying a down payment amount on said first principal amount
comprises applying a down payment made by a lender.
6. A method for restructuring a reference loan in accordance with claim 1,
wherein said first principal amount is less than said second principal amount.
7. A method for restructuring a reference loan in accordance with claim 1,
wherein said first interest rate differs from said second interest rate.
8. A method for restructuring a reference loan in accordance with claim 1,
wherein said second repayment term is the same as a repayment term of said reference
loan.
9. A method for restructuring a reference loan in accordance with claim 1,
further comprising the step of calculating a second repayment schedule for said second
loan, wherein said second repayment schedule starts after the end of the first repayment
term and said second repayment schedule comprises repayment of said second principal
amount and interest on said second principal amount over the remainder of the second
repayment term.
10. A method for restructuring a reference loan in accordance with claim 9,
wherein said step of calculating a second repayment schedule comprises amortizing said
second principal amount over a portion of said second repayment term remaining after
the end of the first repayment term, and determining interest on said second principal
Attn’y Docket No.: 8081.002P
13
amount over said remaining portion of said second repayment term.
11. A method for restructuring a reference loan in accordance with claim 9,
wherein said step of calculating a second repayment schedule further comprises applying
a second down payment amount to said second principal amount prior to amortizing said
second principal amount.
12. A method for restructuring a reference loan in accordance with claim 9,
wherein said step of applying a down payment amount on said second principal amount
comprises applying a down payment made by a government entity.
13. A method for restructuring a reference loan in accordance with claim 9,
wherein said step of applying a down payment amount on said second principal amount
comprises applying a down payment made by a lender.
Attn’y Docket No.: 8081.002P
14
ABSTRACT
A system and method for restructuring a reference loan, such as a troubled loan.
The reference loan is divided into a first loan and a second loan with the first loan having
a principal amount lower than the second loan. The repayment term for the first loan is
set to be shorter that the repayment term for the second loan. A repayment schedule is
calculated for the first loan over the duration of its term, possibly with the application of
a down payment to the principal of that first loan. The down payment may be paid by the
lender, borrower, government, or others. Repayment of the second loan is deferred
during the term of the first loan and the interest on the second loan is written off during
the repayment term of the first loan. At the end of the repayment term of the first loan,
repayment of the second loan, along with interest on that loan begins and extends over
the remaining term of the second loan. A down payment similarly may be applied to the
second loan and may be paid by the lender, borrower, government, or others.
Attn'y Docket No.
8081.002P
Sheet 1 of 2
Identify troubled loan
Divide troubled loan into
1st loan and 2nd loan
Select interest rates
for 1st and 2nd loans
Set repayment term
for 1st loan
Down payment?
Apply down payment
to 1st loan
Calculate repayment
schedule for 1st loan
Defer repayment
of 2nd loan
Write off interest on 2nd
Loan during repayment
term of 1st loan FIG. 1
Y
N
110
120
130
140
150 152
160
170
180
Attn'y Docket No.
8081.002P
Sheet 2 of 2
From: Raghu John To: ******
Sent: Monday, January 5, 2009 10:40:18 AM
Subject: What is the cost of 'Utility Patent?'
Thank you Mr. DeWitt for this informative & prompt response.
Any 'exclusive' agreements would of course include filing a 'utility application.' What is the cost and time involved with doing this? We would then include this cost in any contract for an exclusive right to sell.
The only other question then is whether we have in fact secured the rights of this program if someone else has filed the utility patent after the date we filed the provisional patent? I'm assuming the question is yes, but good if you could confirm. If this is not a risk (someone else trying to take this system by filing the utility patent before us but after we have filed the provisional patent) my question would then be, is there any risk of losing the rights to this patent? I'm assuming there is not, but it would be good to confirm this for our prospective clients.
Raghu
From: Tim DeWitt <*****@24ipUSA.com>
To: Raghu John******
Sent: Monday, January 5, 2009 9:59:51 AM
Subject: RE: Tim, Can you clarify for Harry about RADHA Patent
Raghu:
While the U.S. patent office’s website makes a good effort to provide information about patents to the public, the information often insufficient to fully understand the issues. Thus, Harry’s question about provisional patent applications is both a good question and a very common one.
One might characterize a provisional patent application in the U.S. as only the first step in the patenting process. While the patent office does not examine the provisional application itself, the patent office will conduct an examination when we convert the application to a utility application shortly. The ultimate patent that issues has the same force and effect regardless of whether it was first filed as a provisional application or utility application. Thus, the patent office website states that a patent will not issue from the provisional application “directly” because the ultimate patent issues from the utility application that claims the benefit of the provisional application. I suppose the patent office might characterize this as issuing from the provisional application “indirectly.”
Provisional patent applications are very useful in a variety of circumstances, not the least of which is preserving the ability to file applications in foreign countries. It is especially useful in situations like yours in which you have a new invention that can have many different implementations. The provisional application allows us to preserve an early filing date by writing up the description of the implementations known at that time and at the same time provides us with additional time and flexibility to fully hash out the different implementations to ensure that when we convert the provisional application to a utility application we give the utility application the broadest possible scope.
I hope this response is helpful. If I can be of further assistance, please let me know.
Thank you.
Tim
24IP Law Group USA , PLLC
600 Cameron Street
Alexandria, VA 22314
telephone 703-340-1686 facsimile 703-340-1687
Timothy R. DeWitt, Esq.
mobile 410-******
This communication may contain information that is legally privileged, confidential or exempt from disclosure. If you are not the intended recipient, please note that any dissemination, distribution or copying of this communication is strictly prohibited. Anyone who receives this message in error should notify the sender immediately by telephone or by return e-mail and delete it from his or her computer.
From: Raghu John [mailto: ssriraghu@yahoo.com ]
Sent: Monday, January 05, 2009 9:17 AM
To: ****
Subject: Tim, Can you clarify for Harry about RADHA Patent
Hi Tim,
I was wondering if you would be so kind as to respond to Harry about the issues he raised below about the patents. He is an exclusive for Hawaii and wants to know how strong his protection on the program is. If you could include me on that reply as well, that would be very much appreciated. I'm also forwarding a copy of this to Jay who works with Bob Nealon who is the attorney that would be working to inforce the patent. I'll see if we can get some responses from him as well.
Here's a note for Harry.
Harry, Tim DeWitt is the attorney that did the patent. I'm also forwarding a copy of this to Carlos at the AOS Credit Union so he can confirm things as well. We are still finalizing commission structures, but at this point, we are very open to most anything you find suitable for your time and effort. We would charge banks between $200 to $400 per loan that uses RADHA program. So if they refinanced 100,000 homes with this program, we would recieve $400,000 in commission. You would get between 40% to 70% of this commission depending upon how well connected you are to be able to ramp up this program there as well as any cost involved with finalizing this such as attorney fees etc or other brokers. You would be informed of their involvement before hand.
The real money however is for those brokers that actually work with resolving the issues between the bank and the individual homeowner. At that point, the commission is between 1% to 3% of the properties price and so you could be making as much as $12,000 per loan rather then just $400. Ideally, we could find someone who has the experience and interest to function at this level for that is where the greatest profit margins lie and the greatest degree of customer service to our clients-both banks & homeowners.
I think Daryl is well suited for this kind of work with the distressed homeonwer as an example. Please forward this to him along with a request for him to send me his email address so I can also start writing to him directly. So if you were to negotiate with the Bank of Hawaii while Daryl would start working with the distressed homeowners, we could have a dual business program. Let me know if this is something that would be of interest to either of you.
Let me also mention that if Bank Of Hawaii were to sign on, we would be very happy to bring them on as part owner of the actual business for it would provide the company a huge boost as an up and coming business. So a small downpayment against their projected fees for using this program would buy them a equity share of the company. This would be true of other investors as well, but the terms would be much better for a bank or other financial insitution then just an individual bank.
I'm forwarding this to Jean as well so she can be up to speed with things and/or forward a copy of this to Daryl.
More later
Raghu
From: Harry H. ***** <*****@clearwire.net>
To: ssriraghu@yahoo.com
Sent: Saturday, January 3, 2009 6:36:11 PM
Subject: Happy New Year!
Aloha, Raghu,
Your commitment to your work is impressive, but then your work ethic is different from the lawyers and the consultant with whom you work. Successful people march to a different drummer, with a unique sheet of music. I just got through reading Malcolm Gladwell’s new book, “The Outliers,” which delves into some of the characteristics of very successful people, and while he catalogues certain correlations to a person’s causal elements behind whom he/she is, the one common factor is unmitigated commitment to pursue and to achieve a goal. You certainly fit this mold. As one might expect, here in Hawaii , from the day before Christmas and passed the weekend of New Years, people take extended holidays, and bankers fit in this category. Thus, I won’t be in touch with any of them until the day after tomorrow.
Provisional Application for a Patent
I briefly googled “Provisional Application for a Patent,” and got the following summary description of this process from ”bitlaw.”:
“Starting in June of 1995, inventors in the United States have been able to file provisional patent applications. Once a provisional application is filed, the inventor has one year to file a regular patent application claiming benefit of the provisional. If a regular patent application is not filed in this year, the provisional application will simply expire. The provisional application is itself never examined by the U.S. patent office, and no patent will ever issue directly from a provisional application.” (Emphasis mine.”
If this is the case, what is the validity of the provisional application? Once it is filed, what protection does the inventor have to be protected from someone stealing the idea? Your answers are appreciated. I want to anticipate questions that I might be asked.
Pro Forma
Do you have a summary pro forma from OAS FCU as to what the financial results would be for the participants in FAB program? I think I have a grasp of how FAB works. The benefits to the mortgagee and mortgagor of the FAB program is obvious. But, I’m not clear as to what my role in this program is and if I become involved what would be expected from me and how would be compensated.
Conclusion
I want to be prepared with answers to questions that might arise in nay meetings that I have with lending institutions and others.. I may not have more than one bite at the apple and I don’t want to flub the opportunity. I want to be able to enhance my credibility by being able to provide specific answers and explanations to questions that might arise in all aspects of the program.
Your providing me additional specificities of the FAB program is appreciated.
