Posted by Terry Vaughan on March 21, 2000 at 11:10:16:
Brian:
Getting credit history from your payor should be done when you originate (carry back) the note when you are the seller of the property.
When you are buying a note that has all ready been created, the seller of the note should provide you with all the credit information he has. If there is no credit report, no problem.
My attorney says (sometime back now), if you are the prospective buyer of a “security” instrument, you may run the credit of the payor, without his permission.
The “holder” (current owner) may run the credit at any time to continue to insure his note is still secure.
You should always check the language of the note. Usually there is some paragraph that talks about “security” and performance of the payor. This is the language you may find comforting.
The only exceptions you may find will be in different “State” laws, so you will want to check with your local attorney or note broker for the differences.
Dealing With the Payor When Buying a Note - Posted by B.L.Renfrow
Posted by B.L.Renfrow on March 21, 2000 at 10:01:43:
Maybe I should post this over on the Cash Flow board, but being relatively new to the note end of the business, I’m still a little intimidated by the big boys over there:-)
When I look at a seller-held note for sale, I naturally want to know about the payor. When I offer the note for resale, my buyer inevitably wants a credit report on the payor. However, I’ve not had the results I’d like when approaching the payors to obtain consent to pull their credit. At least a third of the payors I’ve contacted in this situation are reluctant to provide consent. I understand their reasoning: They are hearing from a stranger out of the blue, who wants access to their personal financial data to do something which they perceive as offering no benefit to them. They see no benefit to cooperating, so too many of them just don’t.
How are others dealing with this? Do you actually pull credit on the payors? If not, how do you ever get a buyer to act on the deal? Do you simply run their credit without consent, under the guise of seeing whether the payor is someone to whom you want to offer credit (like the credit card companies do)? Do you offer an incentive to the payor? I have tried telling them that maybe the note could be restructured to their benefit, but they don’t seem to see that as an immediate tangible benefit, plus most of them simply don’t understand anything about the note business anyway, so any explanation just confuses them.
In his paper course, Terry Vaughan alludes to this by saying the info on the payor will have to come from the note holder, but I have found this is not enough for my buyers…they insist on the payor’s credit report.
B.L.
Most note funders including myself want to see what the payor’s credit is like as it is one of the variables to determine RISK. A payor with a sloppy credit past and low credit scores statiscally carries more risk with them of default than a payor with timely credit and a higher credit score.
As for running payor credit. It is NOT necessary to obtain the permission of the payor to run their credit providing you have a “permissable business purpose” to do so.
“Section 604(a)(3)(E) creates a permissable purpose for potential investors, servicers, or insurers of credit obligations to obtain consumer credit reports for the purpose of evaluating or assessing the credit or prepayment risks involved in existing credit obligations or consumers…”
You may also refer to the Federal Fair Credit Reporting Act for more information at:
Simply see if you can obtain a SS# on the payors or at least their previous and /or current addresses. With this information running an infile credit report is possible.
My info is a little stale since it has been about four years since I had to run a credit report but from what I remember from the Fair Credit Reporting Act there is a list of permissible reasons to run someone’s credit report without their consent and one is a “legitimate business purpose”. Are you also able to procure cancelled checks for the payment period? Stuff like this should satisfy any questions.