Guidelines For A Successful Note Purchase

- FINE POINTS
A. GENERAL INFORMATION, We are not acting as lenders or property buyers. My partners and I are strictly purchasers of property seller financed real estate paper. This includes notes, mortgages, trust deeds, land contracts, contracts for deeds and bonds for title. The paper must be in the first position and the payers must be current on their payments. Outside of non common situations which include inheritances, family trusts and powers of attorney, the stated note sellers must have previously been the legal property sellers (legally owned) or currently be in legal title for the related real estate property.

B. LOAN SERVICING, Most note buyers professionally service the mortgage loans they purchase. Thus, two of the benefits for the note payers are that their monthly payments are reported to the three major credit bureaus, and so they have an opportunity to increase their credit scores. Also, the note payers annually receive IRS tax form 1099s (mortgage interest) so they can deduct both the mortgage interest and real estate taxes on their yearly tax returns.

- PAPERWORK
At the beginning of the process or shortly thereafter, the note sellers are responsible for providing timely copies of all needed paperwork. This includes – but not limited to – the notes, mortgages, trust deeds, land contracts or similar, warranty deeds, HUD 1s, property insurance policy, title insurance policy and proof the property taxes are current. Down the road, the note sellers or the closing agents are required to submit all original documents. Some of this paperwork must be notarized and also recorded. The notes, mortgages & trust deeds, warranty deeds and land contracts or similar must always be signed, notarized and recorded. If there are any defects in any parts of any of the documents, they MUST be cured prior to funding time. The common parties that can resolve paperwork errors are the note sellers, the note payers and also the closing agents.

- PAY HISTORY
We do not purchase non performing notes. The note sellers are required to provide proof of the down payments. This could be by a certified settlement statement or by a copy of a check, money order or wire transfer. Also, the note sellers are usually required to provide proof of up to the last 12 monthly payments. This proof is by one or more items. These items are copies of checks or money orders, bank deposit tickets and bank statements. If the note payers made any late payments within the past 12 months (30+ days past due date), there could be a price reduction.
- THE REAL ESTATE PROPERTY
Outside of vacant land, the commercial or residential properties MUST be in livable / good condition and must be occupied by either the note payers or renters of the note payers. In addition, all the property types must appraise at -or depending on the deal - near the note seller’s stated estimate of value. Note purchasers usually acquire BPO (Brokers’ Property Opinion) reports at their own expense. However, it can be quite helpful (although not required) if the note sellers have on hand their own appraisal or request one by a licensed appraiser. If there were recent repairs / improvements, note purchasers might require an itemized list of the work performed along with copies of the paid bills.

- TITLE WORK & THE CLOSING AGENT
Title work is handled by a closing agent that is either a licensed and bonded real estate lawyer or title company. The note seller could choose the party or the note purchaser could use its own. Some of the closing agent’s functions are doing checks on property title and property taxes, preparing a new lender’s title policy (if the current one is not assignable), resolving defects in title or other paperwork, prepare & complete note purchase closing documents, and disbursement of note seller’s proceeds from the note purchaser. FYI..It is strongly suggested that note sellers open title work from their own closing agents, ASAP. This action simply could mean a lot quicker closing of the note purchase.
- TITLE INSURANCE
If the note seller previously conveyed title to the note payer there should be a current and valid lender’s title policy. This would be simply assignable (no cost to anyone) to the note purchaser. However if the note seller is currently on title, a new lender’s title policy must be created in favor of the note purchaser. Depending on the deal, the note seller might be responsible for this cost.
- PROPERTY INSURANCE
Except for vacant land, there must be valid and current property insurance. The insured amount must be for at least the remaining balance of the note. If there are any defects or lapses, they must be cured prior to funding time for the note purchase. FYI... Immediately after funding time, the note purchaser will make the proper adjustments of the policy with the insurance carrier. Unpaid property insurance by the note payer is a foreclosure issue, so this could cause a price deduction.

- PROPERTY TAXES
If there are any delinquent property taxes, they must be paid to current by the note seller or note payer at or prior to funding time. FYI… The back taxes can be deducted from the seller’s proceeds. Unpaid property taxes by the note payer are a foreclosure issue, so this could cause a price deduction.
- PROPERTY TAX & PROPERTY INSURANCE
Sometimes the note sellers collect the taxes and insurance from the note payers via monthly payments and thus pay these bills directly. In this event, the note purchaser would work with the note seller on reconciling the payments going back the past 12 months. The purpose of this is to verify the payments and also show the note payers are not in a credit balance. Any credit or debit balances would require actions to bring the accounts current at or prior to funding time. FYI..Any credit balances could simply be deducted from the seller’s proceeds.
THE NOTE PAYERS
It is strongly suggested the note sellers contact their note payers of the pending note purchase, AS SOON AS POSSIBLE. During the process the note payers’ cooperation might be required in certain areas such as pay history, property insurance or curing paperwork defects. Also, note purchasers usually require to conduct an informal and quick “borrower’s interview” by telephone prior to funding time.
- UNDERLYING MORTGAGES OR TRUST DEEDS
If the note seller has any outstanding mortgage or trust deed liens on the related real estate property, the closing agent would acquire the underlying loan pay off amount from the lien holder (usually it’s a bank). This amount MUST be deducted from the seller’s proceeds at funding time and would then be used to pay off that lien holder.
- FUNDING TIME

The closing agent prepares all the necessary closing documents relating to the particular deal.The note purchaser simply takes assignment of the paperwork. Once everything is in order, the note purchaser funds the deal either by wire transfer or certified check.
FYI…funding time range is two weeks to four weeks. The better prepared the note seller is, the quicker the closing can be.

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