Note Industry statistics tell us that most seller finance note holders are one and done. This means they will sell one property in their lifetime where they agree to carry a note and provide the financing. Experience tells those of us who buy these notes that the majority of these note holders know little or nothing about their borrower, even though they have agreed to finance the transaction for as long as 30 years! Why is this?
My explanation is that these folks do not consider themselves to be business people. In a strange way, they don’t see themselves as going into business with their buyer. Consequently, their due diligence is sloppy and the “administration” of their note is as well.
The Pandemic has forced business owners to adjust to a new reality. And, in order to save their business and the jobs of their employees, they have been forced to pivot and realign their efforts in order to maintain the viability of their business. The note holders I just described need to do the same thing.
So, I have 2 simple suggestions for any note holder, but especially the one and done folks:
- Get to Know Your Borrower. If you live in the same area as your borrower, go visit him. Otherwise, give him a call. Introduce yourself. Ask him how he has been coping during the Pandemic. How has his job been affected? Is he healthy and safe? Can he continue to make the note payments? Is he happy with his purchase? Can you help in any way? Bottom line, you want to show compassion and ensure you have a sound transaction. Your buyer should be thankful for your interest and you should feel good about yourself for taking care of your business.
- Hire a Third Party Servicing Company. If you are receiving your monthly payments directly – cash, mailed check, direct deposit, etc., you should consider contracting with a Servicer to manage your account. Why? For a small monthly fee( your buyer will pay), the Servicing Company will provide Professional Management and Accounting. It’s like having your own CPA. They will collect the payments, impound property taxes and fire insurance, record how much and when payments are received, determine late fees that may be applicable, calculate accurate and current principal balance, prepare annual tax reporting forms, etc. You will get an online monthly report and so will your borrower. They can resolve disputes. Having this service is a time saver and well worth the peace of mind it provides both of you.
