Want to learn more about a note you are buying? Talk to the person making the payments with a purchaser interview.
You might be surprised by what you find out.
What is a Purchaser Interview?
A Purchaser Interview (PI for short) is a friendly conversation with the property buyer paying on the real estate note. It helps a note investor get to know the payer and the property a little better before buying the note.
You might also hear it called a Payer Interview, Buyer Interview, or Borrower Interview. They all refer to the same person—the purchaser of the property who owes the money and makes the payments.
While not used on every transaction, they can add an extra layer of comfort by providing clarity, answering questions, and helping get a deal done.
When Do Note Buyers Consider Using Purchaser Interviews?
Ask a traditional mortgage buyer on the secondary loan market about using a PI, and they will think private investigator, Hawaii, Tom Selleck, and maybe bushy mustaches. It’s just not a term used in the world of buying and selling traditional loan originations.
The PI is unique to the seller-financed note world and used as part of due diligence. There are three main reasons note investors use the Purchaser Interview.
#1 The Seller Is Collecting Payments Directly
Not all sellers and buyers use a third-party servicing company. When the seller is self-servicing and collecting payments directly from the purchaser, it helps verify the payer agrees with the current balance.
Perhaps the payer made an extra $100 payment last year or sent an additional $1,200 principal payment after a tax refund that slipped the seller’s mind. This would result in a lower principal balance (and a correspondingly lower pay price).
#2 The Payer Doesn’t Have Much Equity
When the payer has a good down payment or has built equity through regular payments, they are more likely to keep making payments. That higher equity creates more of a cushion for both the purchaser and the note investor.
When equity is low (below 10-15%), there is less for the payer to protect. By talking to the purchaser, an investor can better gauge the payer’s ability and willingness to make payments. Combine low credit or no credit with low equity, and it’s possible a positive Purchaser Interview could provide the assurance needed to turn a marginal deal into a closed deal.
When talking to the buyer, they might tell you how they remodeled a bathroom, updated a bedroom, or got a new job with solid income and benefits. Or that they have family down the street that helps watch the kids after school. These positives can tell a story behind the numbers.
#3 The Note Buyer Needs Clarity
When unanswered questions surround the buyer, property, or note terms, it helps to get answers from the source.
This could confirm that a once-empty property is now renovated and occupied, or that a mixed-use property now has a thriving business generating income, turning an uncertain situation into a solid note investment.
It could also reveal that farmland turns out to be a cannabis-growing facility, or that a lack of property insurance means the property can’t be insured. Either way, you want to know before buying the note.
Clarity can save a deal OR save you from a deal.
Tips For a Successful Purchaser Interview
There is an art to having the purchaser feel comfortable sharing information. These important tips will help set the stage for a successful interview.
Get the Seller’s Permission
Always get the note seller’s permission before contacting the purchaser. They can also provide the contact information (phone and email) to coordinate the call. We also like to use a written, signed authorization from the seller to release information.
Have the Note Seller Reach Out to the Buyer First
It helps immensely when the seller calls the purchaser first to let them know they are looking to sell their note and that the investor will contact them to verify some information. With the huge increase in identity theft, phishing, and unsolicited marketing, many buyers are understandably reluctant to share information with a stranger contacting them out of the blue.
Reassure the Purchaser All Terms Stay the Same
The interview should start with the investor explaining that they are in the process of purchasing the note from “John & Jane Doe Seller” and they want to spend a few minutes discussing the transaction to make sure they have the correct information.
Reassure the payer that nothing will change for them except where they send their monthly payments. Convey, without hesitation, that no terms such as their interest rate or payment amount can be changed without their written permission.
Ask Friendly Questions
This isn’t an interrogation. This is a friendly conversation.
Break the ice with less intrusive questions, such as “How do you like the property?” You can also follow up with, “Have you made any updates to the property?”
If the purchaser wants to talk about things not on the interview questionnaire, let them. The more they share, the more information available to either provide assurance of a sound investment or give cause for concern.
Personal questions are better asked once you’ve established rapport. It can be more effective to provide the payer with the information on file for the detailed questions, asking them to verify rather than divulge it on their own. For example, “The seller mentioned XYZ Insurance Agency insured the property; does that match your records?”
Confirm the Payment History
When discussing payment history and balance, ask open-ended questions. Such as “How do you make your monthly payments?” and “What amount do you normally pay?”
Compare the payer’s answers with the information provided by the seller, or any information you may have assumed up to this point.
One of the most helpful questions asked toward the end of the interview will be “Are you comfortable with the monthly payments?”
Have the Amortization Schedule Available
Sometimes a payer is unsure of their exact balance owed. You can ask, “Have you ever made more than the amount required or missed a scheduled payment?”
If the payer answers, “No, I just send the required amount each month,” we usually provide the balance from the amortization schedule so they can verify it. We also offer to email or mail them a copy of the amortization schedule for their records.
See if They Have Any Questions
Let them turn the tables and ask, “Do you have any questions or concerns for us?”
It’s common for them to want to again verify the note terms stay the same. You may also find they get paid on the 1st, and having the payment due on the 7th instead of the 1st would make things much easier. Or they pay taxes and insurance directly and would like an escrow account set up to budget for them monthly rather than once a year.
Let The Purchaser Know What Happens Next
Assure them they will receive written confirmation when the transfer has taken place, including a copy of the recorded assignment and a letter on where to start making their regular monthly payment. Until then, they should keep paying the seller as normal until they receive those formal documents.
When Purchaser Interviews Aren’t the Norm
We’ve already mentioned traditional or conventional mortgage sales don’t normally involve a Purchaser Interview. The Purchaser Interview also won’t always be used on seller-financed notes.
Third-Party Servicing
If a licensed servicing company manages the payments, it will provide third-party confirmation of the payment history and remaining balance. They also keep contact information and servicing notes on past communications with the purchaser. Since a note investor will request those items as part of due diligence, a purchaser interview is not often used when there is a third-party servicer.
Bankruptcy
When the payer has filed for bankruptcy, creditors are told to stop attempting to collect debts during the case. Contacting a purchaser directly in this situation could accidentally violate the “automatic stay” provided in bankruptcy.
Instead, a note investor may contact the Bankruptcy Trustee for the status of the bankruptcy and obtain copies of document filings online through Pacer.gov.
If a note is non-performing, also keep in mind any rules that could apply related to collecting payments and the Fair Debt Collection Practices Act (FDCPA).
Strong Credit and Equity
On the other side of the pendulum, the note might have a very strong purchaser with lots of equity and a great credit history. If they are contacted about the note sale before closing, they may be able to pay the note off from savings or a quick refinance.
We recently lost out on a land note in Texas that the seller self-serviced. The purchaser had money saved up and decided to pay off the note early when the seller reached out to let them know we’d be calling to verify the balance and payments.
What if the Purchaser and Seller Don’t Get Along?
If the seller and buyer are not on friendly terms, we often find the buyer more than willing to tell their side of the story to any willing listener. They might even express how happy they are to be rid of that @&*!! (insert expletive of choice).
Remember there are two sides to every story. We’ve bought many solid paying notes where both the buyer and the seller were happy to be rid of each other. Oddly enough, it usually involves family, in-laws, divorces, or neighbors.
What About the Payor Estoppel?
Another form of verification is performed in writing instead of over the phone. This document is sometimes called a Payor Estoppel or Mortgage Estoppel.
The estoppel outlines important items like the balance, interest rate, payment amount, taxes, insurance, and contact information. It asks the borrower to sign and return it to verify accurate information for account setup.
These are sometimes used when it is hard to reach the purchaser or when a title company requests insurance under a new title policy.
Timing Matters
The Purchaser Interview usually happens right before closing and takes about 5-10 minutes.
By the time we get to the Purchaser Interview, we’ve already received information from the note seller. We are in the final stages of due diligence. This means most documents have been gathered, value confirmed, title reviewed, payment history verified, and taxes and insurance confirmed current.
Sometimes a 10-minute conversation confirms what you already know. Sometimes it gives you the information needed to save a deal. Sometimes it uncovers a reason not to buy. All three are valuable outcomes.
Another outstanding article by the Queen of Note Inveators!