Posted by John Behle on March 23, 2000 at 19:59:45:
For drafting documents and closing a transaction, it can run as little as $35-150. The low end would be just drafting documents. There usually is no need for any kind of a formal closing, yet I do that at times.
If they are providing any title insurance (as in our conversation on the phone today), then the fees may be less for closing, but you have the insurance which can run in the hundreds.
Like we discussed in your small deals, heavy costs have to be weighed into it and you may want to look at alternative methods other than appraisals and a title insurance policy.
Where you were unsure of the previous assignment, I would pursue the possibility of the seller of the note throwing in a new note with collateral.
Again, meet the need without assuming the problem.
Mechanics of Purchasing Mortgage - Posted by Rich[FL/GA]
Posted by Rich[FL/GA] on March 03, 2000 at 13:42:40:
John (and all other paper experts) -
What are the mechanics of actually buying a mortgage? I mean after all of the due diligence has been completed and you decide on your acceptable yield and actually offer a price (and it’s accepted), what next? Is it nothing more than an assignment of mortgage that needs to be filled out (along with the appropriated title insurance, etc)?
I’ve been doing some studying about notes, discounting, and some other creative things you can do with them (the information you provided in Atlanta was invaluable!) but this is the last part of the equation that will make everything come together for me. Thanks for your help.
The mechanics of buying a note. - Posted by John Behle
Posted by John Behle on March 03, 2000 at 18:13:35:
The note itself needs to be “assigned”. That is usually a “Trust Deed Note” or a “Mortgage Note”. That assignment can happen through an endorsement on the note (like you would endorse a check) or through a seperate endorsement agreement.
The “Trust Deed” or “Mortgage” then needs to be assigned. This happens with an “Assignment of Trust Deed” or “Assignment of Mortgage” form. There is a state approved form and format in each state that is usually used.
The physical possession of the original note then changes hands to the new owner and the “Assignment” of trust deed or mortgage is recorded against the property title. That assignment will then be mailed back or in some cases be given back immediately.
Would you briefly talk again about the title insurance when buying a note? Did you say you didn’t need to get the lenders insurance? What is the specific name of the coverage a person should ask for?
Re: The mechanics of buying a note. - Posted by Rich[FL/GA]
Posted by Rich[FL/GA] on March 03, 2000 at 21:01:59:
Thanks for the info John. Here in Geogria, I guess we will use the assignment of Trust Deed Note and Trust Deed. I will check to see if there are state approved forms here.
What I have is a 2nd mortgage on a house - well, I haven’t got the full value yet - but the two mortgages are 1st: $24k and 2nd: $9k; I was told today that the 2nd was created late last year, the seller couldn’t remember exact date; maybe Oct. Terms were I think $100/mo for 120 mo. She said to date the seller has paid about 1.5 payments! So, at this time it appears to be a risky note. We’re suppose to get together either Sun or Mon so I can see the paperwork for the original note. I am familiar with the general neighborhood the house is located in and most are valued between $36k to $40k.
I understand the current note holder and note payer are friends and that was mentioned as the fact this lady isn’t pressing the issue of forcing the mortgagor to pay.
If there are any other “gotchyas” you can point out to me to watch out for I’d appreciate it. Now to run off to find out how much my lawyer charges for a transaction like this…
I mean, if I just go into an escrow company and say, “I’m buying this note from this guy.” Will they know what to do? Or do I need to get an attorney involved?
How should the note best be endorsed to make you a holder-in-due-course?
Posted by John Behle on April 03, 2000 at 17:08:53:
Title insurance covers and insures the title to the property or the “title” to the note. It is insurance of ownership and that things were done properly.
Many notes have title insurance on them when they are created. So, you know Sam that is selling the note to you was insured up to that point. Very little that goes on with the title since the time of that insurance affects his note or position - unless he had financial problems, bankruptcy, etc. - or title problems that were existing crop up. A title search is mandatory with a note purchase. For most I’d say title insurance is mandatory. I don’t always get it, because I can check the title and do the work myself or with an assistant.
The bottom line for title insurance is “if you have to ask - Get it”. A lender’s policy is more comprehensive. First American Title has a great website that covers and explains title insurance as well as their “Claims Chronicles” section that contains about 40 claims they’ve had to pay out on - or straighten out.
Talk to a title company. Make sure they give you and update price by providing them with any previous policies. It may be best to go to the same company. ALSO, make sure they know you are just insuring your interest in the note. That is many times much cheaper than if you were buying or insuring the whole property.
Posted by John Behle on March 03, 2000 at 21:56:12:
You are looking at over a 90% LTV on a severly defaulted note. When a note goes that bad right from the “get go” that is not a good sign. They may be friends or that may be “the story”.
If you can find a buyer (sophisticated - that knows what they are getting into) with no recourse, you could make a dollar or two if the price were right.
If you are looking at investing your own money, that is a different matter. You had better be willing and able to take the property under these same terms. You may need to start legal action right away. The “friend” scenario may be real and they might begin paying you. You will need to “rattle the saber” pretty good. Check their credit. If the credit is good and this is the only thing they are behind on then maybe you could be ok. I’d consider it in my area, but I like problems. I wouldn’t consider much more than 50 cents on the dollar or do a contingent funding scenario.
You take the challenge and a potential profit and let the note seller keep the risk and stand behind their story. IE - You pay part now - maybe 25%. Then when the note begins paying regular, throw in another payment of cash or a portion of the payments. Then restructure the note with the borrower and get them paying payments. If you press for back payments, that could be too much and trigger a bankruptcy or un-workable situation.
Why they haven’t paid would be an important issue for me. I’d like to see something more pleasing than “my friend didn’t press me - so I took advantage of him”.
Sean:
To have a note endorsed to you ,either on the back of the actual ORIGINAL prommissory note or using a seperate recital (sometimes called an allonge) page that can be later on stapled to the note you can use language as follows:
“Pay to the order of Sean XX with (or without) recourse, restriction, or limitation dated this xx day of xx, 2000”
Posted by John Behle on March 04, 2000 at 15:12:46:
An escrow company, title company or attorney. Whoever routinely handles closings in your area. In ours it is a title company. Should just run a few dollars.
Posted by Rich[FL/GA] on March 04, 2000 at 08:01:12:
John, I’m getting a little scared! I actually had a feeling you were going to say that, which means I’m really beginning to understand this business ! The problem is I’m still a “beginner” and ripe for jumping into a lot of trouble so I want to take this one step at a time. I really appreciate the detail you go into with your posts.
One thing I didn’t think of was partial payments until the note begins to pay regularly, letting the seller keep the risk. When I sit down with them face to face I’ll see if I can work this into the discussion. I’ll keep you informed as things progress.
Oh one other thing. I did plan on using my own money for this. After listening to Lisa Moren at the convention in Atlanta last weekend, I don’t know if I want to persue licensing in this state to broker notes as is currently required. So if I run across any more I’ll see if I can “borrow” the money to complete the deals for myself.