Posted by JPiper on November 18, 2000 at 07:57:54:
Due diligence is basically the process of checking the deal out prior to closing.
For an excellent article on due diligence as it pertains to the commercial area, read Ray Alcorn?s article on the Commercial Newsgroup of this site.
The specific due diligence that you undertake is going to vary depending on the nature of the specific deal. For example, if you were buying a note you might want to see a copy of the note and the security instrument so that you could see what you?re buying, the interest rate and terms, etc. You might want to see a credit report and other pertinent information regarding the payor?s history so that you could determine the likelihood of receiving timely payments. You might want to conduct an appraisal through an independent source so that you could determine the equity in the deal. You might want to see copies of the settlement statement concerning the original transaction so that you could see how much cash the payor had in the deal, so that you could determine the likelihood that the payor would end up walking from his note. You might want a record of the payor?s payment history, to see how they?ve been handling this particular note. You might want an estoppel certificate from the payor verifying the important terms and status of the note. You might want to see a preliminary title search to verify other liens against the property. You get the point?.you?re going to verify the important elements of the deal. (By the way, I?m not suggesting this as a complete due diligence list for buying notes?they are just some of the things that might be important to me if I were going to buy one.)
For single family homes you would probably want to verify market value, condition of the property, cost of rehab, terms and status of any existing financing that you will take over, title, etc etc etc.
Everyone works a little different?.but these are things that you may ask upfront?.and your contract may become contingent upon depending on the transaction, and then are verified after you have your deal tied up.
JPiper