Increase Mortgage Note Value

Want top dollar when selling mortgage notes?

Increase the value with payment histories!

Keeping an accurate record of the payments received on a mortgage note is essential for knowing how much the buyer still owes. This also establishes a record of their payment habits – with an added benefit.

The value of a note can be improved by presenting note buyers a verifiable payment history!

There are two main ways to keep track of payments on seller-financed mortgage notes: 1) outside serviced, or 2) seller direct.

Professional Mortgage Note Servicing

The first and easiest is to let a professional handle it. The payments are made to a third party servicing agent that keeps track of the balance and sends the money along to the seller. They will also send out the annual 1098 Mortgage Interest Statements and can hold original documents in safe keeping.

The DIY Approach to Collecting Payments

If a seller chooses the “Do-It-Yourself”’ method over a third party pro they will need to follow these steps:

1. Place original note and other original documents in a safe deposit box.

2. Make a copy of each check or money ordered received. Accepting cash is not recommended since it is hard to verify the payment history without a paper trail.

3. Deposit the payment and keep a copy of the bank record of deposit. It is best to deposit each payment separately rather than combining with other checks.

4. Create a ledger or spreadsheet reflecting the date and amount of payments received.

5. Calculate the amount applied to interest, principal, late fees (if any), and the resulting principal balance. An amortization schedule or financial calculator can be helpful. Once calculated, record in the ledger.

6. Send out an annual statement to the buyer or payer along with the IRS1098 Mortgage Interest Statement.

7. Verify the real estate taxes and property insurance are being kept current. Consider establishing a tax and insurance escrow where the buyer pays 1/12th of the annual amount into a reserve account each month.

8. Send collection letters as necessary for late payments, lapsed insurance, or delinquent real estate taxes.

Why Note Buyers Want Payment Histories

When an investor agrees to purchase a note they will request a payment history. A verifiable payment history can improve the value of a note as it provides proof of timely payments. A payment history is considered verified when it is either provided by a third party or is backed up by the documents and records outlined above.

Unfortunately many sellers fail to keep track of the payments received. When they go to sell the note, contract, or trust deed they try to recreate the history from memory. Without any proof of payments received, a note buyer has to go on faith. Sometimes a payment history affidavit can substitute for a payment record but it still doesn’t add the value of verifiable proof.

Protect the value of your mortgage note! Set up a payment tracking method today.

A buyer failing to make payments on the mortgage note isn’t your only worry.

Understandably, a buyer that stops making payments is a major concern when using owner financing. After all, a seller-financed note is a very valuable asset.

Unfortunately many sellers fail to protect their asset when it comes to another area…verifying current property insurance and taxes.

Next to delinquent payments, the most common default by buyers is failure to keep the property insured and the real estate taxes current.

In fact many buyers will make their monthly note payments but fail to pay the insurance premium or real estate tax installment.

Sadly, a lapse in insurance can be devastating to both the buyer and the seller. If the property burns down and is not insured, the seller will probably never see another payment from the buyer.

If a buyer fails to pay the real estate taxes for long enough the county can actually foreclose on the property. In most states, the lien for county taxes even takes priority over mortgage note holders, leaving an unsuspecting seller high and dry.

The solution?

Verify the insurance and taxes are current and require the buyer to submit proof!

For insurance, require a copy of the declaration page showing the buyer as the insured owner and the seller as the insured mortgagee. Next call the insurance company to verify the policy is current and the annual premium has been paid. As the mortgagee listed on the policy you should receive notice of cancellation but it is safer to verify on or before the date premiums are due from the buyer.

To verify taxes are current simply check the county records using the property address or tax parcel identification number. This can be done with a phone call, a visit to the county tax assessor, or online.

Most documents require the buyer to keep taxes and insurance current and failure to do so qualifies as default under the note. Sellers can demand the default is immediately cured or start foreclosure.

Sellers as lien holders may also elect to pay the delinquent amount to protect their interest and add back to the amount due, depending on the terms of the actual note, mortgage, deed of trust, or contract.

Some sellers prefer to avoid the headache by setting up reserves through a third party servicing agent. This way the buyer pays an amount equal to 1/12th the annual amount for taxes and insurance establishing an escrow reserve account from which the bills can be paid.

A note buyer will also verify the taxes and insurance are current should the note holder ever decide to sell the mortgage note, trust deed, or contract.

Whatever the method, smart sellers know to protect their valuable asset by verifying the real estate taxes and hazard insurance are being kept current on the property!

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Payment Histories Increase Note Values