In todays email:

I will discuss the 4 action items you should take directly after purchasing a mortgage note. 👊

4 Action Items After Buying A Note 

So you found the perfect note and you're ready to get started but before you do make sure that you complete these steps outline below.

These action items are not necessarily in order since the order may vary depending on when you receive the collateral, servicing setup time, etc.

I. COLLATERAL PACKAGE REVIEW

When buying a mortgage note, a collateral package refers to the collection of documents and materials that provide evidence of the security interest or collateral backing the mortgage note. The collateral package usually arrives within 2-3 weeks of funding a note. This package typically includes:

1. Mortgage or Deed of Trust: This is the primary document that outlines the terms of the loan, including the amount borrowed, property securing the loan, etc.

2. Promissory Note: This document is a legal instrument containing a written promise by one party (the borrower) to pay a certain sum of money to another party (the lender) according to the terms outlined in the note and includes interest rate, repayment terms, etc.

3. Title Insurance Policy: Title insurance protects the buyer and lender against losses arising from defects in the title or ownership of the property.

4. Assignments: An assignment of mortgage is a legal document that transfers the ownership of a mortgage loan from one party to another.

5. Allonge:  This is used to endorse the note to the new owner effectively transferring ownership. Many times the endorsement will be directly on the note and then the allonge is not needed.

6. Misc Loan Documents: Any additional documents related to the loan, such as disclosures, payment history, and correspondence.

7. *Property Appraisal: An appraisal provides an estimate of the property's value, which helps determine the loan-to-value ratio and ensures the property provides adequate collateral for the loan.

8. *Property Insurance: Lenders typically require borrowers to maintain insurance on the property to protect against damage or loss.

9. *Original Closing Documents: This may include documents related to legal reviews, property inspections, environmental assessments, and any other due diligence performed during the underwriting process.

   *These starred items are not always included when buying a note. However, I like to get these items on newly originated notes such as when buying a private/hard money note or a seller carry back note.

Steps to take after receiving the due diligence in mail:

1. You should have a checklist 📋 of the documents that you expect to receive, and make sure that each document corresponds to the note you are buying and make sure that the names, addresses, amounts, etc all match. It is important that you go through the chain of assignments and allonges to make sure ownership is transferred properly. If you're missing any documents, you need to immediately reach out to the note seller and get those documents.

2. Scan all the documents separately into a folder on your computer and then back them up on some type of storage device and/or some type of cloud storage like Dropbox.

3. Then you need to gather all the original docs and put in folder and store in a fire and water proof safe. Remember the original note with wet signature will be required in some states if you need to foreclose. The safe I have bought in the past was the Honeywell 1108 which holds legal size file folders.

II. RECORD THE ASSIGNMENT(S) OF MORTGAGE OR DEED OF TRUST

After completing the document review, I then take the unrecorded assignments and get them recorded either electronically through e-record platform (see prior newsletter for details) or by sending them through the US Postal Service or FedEx to the county clerk. You first want to check to see which assignments have already been recorded (so you don’t duplicate record) and then pick up after the last recorded assignment. Most of the time, the last recorded assignment was to the seller of the note (but I do find some note sellers that have not recorded their assignment yet and I therefore have to record that their assignment first and then my assignment). You can look at your title search to determine which assignments have already been recorded.

CSC eRecording Solutions has about 2400 available counties for eRecording (https://www.erecording.com)

Simplifile has about 2500 available counties for eRecording (https://www.simplifile.com)

III. SETUP SERVICING AND SEND OUT CFPB REQUIRED LETTERS

When you buy a note, you have to setup servicing if you have not done so in the past. You need to sign a servicing agreement with a servicer and then work on service transfer.

The seller of the note typically notifies the buyer’s servicer of the service transfer and dates of service transfer. Typically, service transfer takes 2-4 weeks to complete.

The seller’s servicer sends out the appropriate RESPA Notice of Transfer of Loan Servicing (commonly known as RESPA letter) used to inform borrowers about the sale or transfer of their mortgage loan to another lender or loan servicer.

RESPA letters are sent out whenever the servicer changes.  One is sent by the seller’s servicer (i.e. goodbye) and one is sent by the buyer’s servicer (i.e. hello). The letter must include important details such as the effective date of the transfer, the name and contact information of the new lender/servicer, etc. The RESPA letter must be sent to the borrower no later than 15 days before the effective date of the transfer of servicing.

As the new owner of the mortgage note, you have to send out a TILA letters according to the CFPB rules (see example below) when transfer of ownership changes. You can have your service do this for you as well for a small fee.

The servicer boards all data from the prior servicer such as unpaid principal balance, interest rate, last paid date, term of loan, borrowers contact information, corporate advances, etc.  In addition, the servicer inputs any attachments such as TOS letter (transfer of service), RESPA letters, copy of note and mortgage, etc.

When this is completed you should review all the information for correctness. Also if the loan is escrowed, you want to make sure all the escrow funds from the prior servicer are received by your servicer.

IV. BORROWER OUTREACH AND COMMUNICATION

Communication with Borrower: Throughout the transfer process, both the old and new servicers should communicate with the borrower to keep them informed of the progress and any actions they may need to take, such as updating payment instructions.

Completion: Once the transfer is complete, the borrower should receive confirmation from the new servicer, along with instructions on how to make payments and access their account moving forward.

Homeowner Options Letter: If a homeowner is in default or behind on payments you could send out a letter to the homeowner stating what are some of their options such as:

• Loan Workout – changes the terms of your loan based on your ability to make payments

• Reinstatement – making a lump sum payment, or a payment plan, on the arrearages

• Repayment Plan – continue to make regular payments and add a portion of past due payments and costs due to your payment

• Discounted Loan Payoff – the opportunity to pay off your loan at a huge discount

• Deed-in-Lieu of Foreclosure – turn the property over to your lender in exchange for stopping the foreclosure

• Loan Assumption – allows a third party to purchase your property and take over your loan

• Short Sale – We accept less than the entire amount owed if the property is sold

• Seller Assistance - program to help those who choose to avoid foreclosure and want to obtain the equity earned in the property (if equity available)

If you have a note or looking to buy a note and need some help with the process, please email [email protected] to get more information about our advisory/consultation service.

We would love to get your feedback and your thoughts! Let us know which topics are of interest or where you need more clarity. Just respond to this email directly 😌 or email [email protected].

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