I recently had breakfast with a friend who is a very experienced Escrow Officer. While talking about some of her transactions and the issues she had to deal with, she quickly switched to seller financing and blurted out “Some people should not carry paper.”
What did she mean? The same thing we in the note business keep harping about. Poor due diligence. Poor terms. Poor documentation. Selling to buyers that should not be sold to. Essentially, jeopardizing the future security of the transaction.
When a note buyer buys a note, we inherently understand the potential risks in acquiring a note where other parties have agreed to terms that we will not change. As a result, we rely heavily on 3rd parties to confirm the original transaction and our pricing. We use credit bureaus, property appraisers, title companies, county property records, etc. This protects us, the note holder and the borrower by insuring the documentation is legal and secure. Unfortunately, some note holders do not apply the same degree of thoroughness and diligence when they agree to seller finance.
They may pay the price down the road!
