When you’re preparing to sell a note, organization is key.
If you have a note servicer, you should first log into their portal so you can review the note you want to sell.
You should analyze the pay history and verify the remaining balance on the note. Also, read through notes and conversations between you and the servicer and between the borrower and the servicer.
It’s important to know if the borrower is paying principal, interest, taxes, and insurance. Check the status of the taxes and insurance. If necessary, you can get a broker price opinion or check recent comparable sales in the neighborhood. The properties must be of similar size and age.
Be sure to visit a website such as Paperstac to determine what other similar notes are selling for. Similar notes will have a similar balance, similar monthly payments remaining, similar payment amounts, and determine what kind of yields those notes are generating. The price you decide on should be reflective of the yields of other notes in the current market.
Step 1 – Due Diligence
After you agree on a price with the note buyer and accept a letter of interest, send the buyer your due diligence package.
This can be done by creating a shared file (i.e., Dropbox, Google Drive, etc.) with all appropriate documents the buyer asks for such as the mortgage/deed of trust, assignments of mortgage, promissory notes, and allonges.
You can share the link for the share file folder with the potential buyer. The shared link can be removed anytime, in the event they do not buy the note.
Make sure you include a copy of your insurance documents for the property in the share file. If the borrower has their own policy, you should include their policy.
You can also download your servicer’s notes and upload them in the share file. Never withhold information from the buyer because you could be forced to buy back the note.
Step 2 – Initiating Service Transfer
When selling your note, you will first notify your note servicing company that their services can be discontinued and that they will need to transfer their services to the note servicing company of the buyer.
If the buyer will not be using a servicing company, your servicing company will transfer their services to the buyer. If they will be using a servicing company, you will need to know the name of company and make sure the buyer is prepared to board an asset with that company. It’s important to make sure the servicing company is prepared to avoid delays in getting the service transfer initiated.
The service transfer can be initiated by email or a phone call to your note servicing company to inform them you will be selling the note and provide them the name of the individual or company who is buying the note. You should also provide them the name of the servicing company they will be using.
Once you receive the funds from the buyer, inform your servicing company that they can initiate the service transfer. Do not initiate the transfer prior to receiving the funds. The process of initiating a service transfer takes between 7-10 days. The overall transfer process can take between 30-45 days.
Step 3 – Closing Transaction
Closing the transaction can be completed by requesting the note buyer wire you the funds and provide them the correct wiring information. When using this method, make sure the note buyer calls you to confirm the correct account number.
Using this tactic prevents scammers from intercepting your email, inserting their own account number, so they can steal your money. Once the money has been successfully wired into your account, you can release the documents.
In case the note buyer does not want to wire money to your account, hire a third party, such as a title company, to act as the middleman and receive the wired funds.
Send all original documents to the title company. They can confirm with the seller that they received the correct funds from the buyer and confirm with the buyer that they have the original documents from the seller.
The title company will then release the funds to the seller and release the documents to the buyer. If the buyer requests the third-party involvement, they may request that you split the cost associated with it.
Step 4 – Post Closing File Transfer
Send all the original documents to the buyer, using a delivery method that can be tracked and signed for. Inform your servicing company that you no longer own the note.
If you have forced placed insurance, contact the company to cancel the policy. Review the policy because you might be entitled to a partial refund. You can then close out your books by removing that asset and include gain or loss because its relevant to your taxes.
Scan all your due diligence files and shred all your paper copies. Save the electronic copies to a thumb drive, external hard drive, or a Dropbox.
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