Let me share a thought: If you self service a note that you are holding, the transaction is personal. If you hire a 3rd party servicing company – full service – the transaction is business.
When thousands of dollars are at stake, I think it would have value to export the responsibility and maintenance of a note sale. The small monthly fee is well worth it, and, you can have your buyer pay the fee instead of you.
The world of seller financing has traditionally been the Wild, Wild West between two parties who can agree on anything they want, though the Dodd-Frank regulations have certainly tightened up things. But once the deal is closed, it is frustrating for those of us in the note buying business to see how some sellers “take care of their business.” For example:
- A seller will accept cash for the monthly payment.
- A seller will keep this cash, spend it, have no 3rd party record that this payment was actually made.
- There is no fire insurance on the property.
- There is fire insurance, but the seller is not listed as the payee on the policy.
- The fire insurance has lapsed, the seller does not know this, or the seller does not insist the insurance gets reinstated.
- The seller does not know property taxes are delinquent.
- The seller and buyer don’t agree on the current principal balance.
These kind of problems, and more, can be avoided or at least alleviated by having a professional company service the note. What are the advantages to both seller and buyer?
- Provide current, up to date software.
- Comply with all tax and note industry rules.
- Provide online accounting and statements.
- Accurate current principal balance numbers.
- Impound property taxes and insurance.
- Prepare annual IRS reports – Forms 1098 and 1099.
- Help establish credit history for the buyer by reporting to credit agencies.
- Simplify the seller’s life, reduce stress.
Just because you do one transaction in your life does not disqualify you from having your transaction professionally managed. You owe it to yourself to keep your affairs in order and a servicing company can go a long way to helping you. Ask your Title Officer or Real Estate Broker to recommend someone. Or, Google “Note Servicing Companies” and you will find established, reputable companies that will do a good job for you.
