The note business has a lot of risk to it, so we better be confident that we have done our homework before we finalize a note purchase and send that wire transfer.
If you have gone thru the mortgage lending process in order to buy a home, you know firsthand the feeling of being “investigated” before your loan is granted. The note buying process is less invasive, yet some potential note sellers feel that if they tell us the note terms and all payments have been made, we should be able to give them a price for their note. When I respond “Well, I want to know everything you know”, I usually get a lot of silence on the other end of the phone.
Here is what we do – you judge for yourself how it compares to qualifying for a mortgage loan:
Most note buyers purchase notes throughout the United States – they don’t focus on their backyard. We will not personally see the property that is serving as the collateral. We won’t be able to go inside or get a feeling for the neighborhood. If we see interior pictures on line, that is as close as we will get. When we order an appraisal, it will be a drive-by done by a local real estate agent who will not disturb the occupants nor walk onto the property. He may provide some external pictures, provide comps, and give us his estimate of the current market value.
We will not meet with your payor. We will not ask for pay stubs, W-2’s, or tax returns. We will not talk to his employer. We will check his credit and comfort ourselves that the price paid for the note equates to his proven ability to pay and manage his finances. Prior to closing, we will have a courtesy phone call with him to assure him note terms are not changing, get his agreement on number of payments made and current principal balance, and look for assurance from him that he is happy with his purchase.
We will review all your documents. We will require proof of payments received. We will order an updated Title Commitment to ensure Title to the property can pass cleanly. We will require a Hazard Insurance Policy and an Owner’s and Lender’s Title policy. We will service the account professionally, file the required IRS forms annually, and ensure that we and the payor always know the exact account status.
When we are ready to close, we typically allow the seller the option of closing at his title company or closing direct with a notary of his choosing. With the Pandemic, everyone seems to be comfortable with the direct approach, where we overnight the purchase agreement with a cover letter, you sign in front of the notary, provide your banking information and return the original note and recorded deed.
The next day we review your package, take a deep breath, wire your funds and trust we covered our bases.
This is why we ask all those questions!
