Due diligence is the most important duty of a note buyer before closing any transaction. Sometimes, we fail. And sometimes, we fail in a big, big way.
I am aware of a situation that I was not involved in that turned out tragically for the note buyer.
The property in question was a single family residence in a major metropolitan area. The note buyer had completed all the necessary due diligence except proof of current hazard insurance. A closing had been scheduled for a Friday and the note buyer decided to go ahead with the closing date and then deal with the insurance question the following week.
The parties met at the Title Company, documents were signed, funds were released, and recording was requested from the local county recorder.
On Monday, the note buyer was informed that a fire had occurred at the home in question and the property was destroyed. Additionally, the hazard insurance policy had lapsed. The note buyer honored the transaction.
Had the note buyer known all the facts, the closing date could have been moved forward, the insurance reinstated, the note buyer listed as Payee, and at least the note buyer could have been made whole.
We always say there is a big risk for a person to decide to carry a note and for a buyer to buy that note. Here is a prime example.
