You may have heard the term “outside servicing” and not really thought of what it is or how it may be helpful when owner financing.
In a nutshell “outside servicing” typically means that the collection and reporting of seller financed mortgage payments are performed by a third party, not the note holder or seller.
A servicing company will typically charge anywhere from $3 – $18 per note each month for this service, and there are some big advantages in using an outside company when collecting payments.
For starters, a third-party company typically handles everything from depositing the checks to reporting late payments. They will also handle the 1098 mortgage interest reporting at the end of the year. This is perfect for someone with multiple notes or someone who just doesn’t want to be “hands on.”
The servicing company collects the check, deducts its monthly fee and forwards you the remaining amount (or deposits it into the bank account of your choice).
Some companies will provide you with collection assistance in the event of either default or foreclosure. These additional collection services may also incur additional fees.
A servicing company is a great third party verification of a note’s performance. This can be particularly helpful if you want to sell a note for profit. In addition to monthly statements, it can provide a complete accounting of all payments ever made.
If you hold only a couple of notes, you may decide to collect them yourself. Whenever collecting payments, be certain to keep accurate records including a copy of the payment and any corresponding deposit slip. The 8 Steps for Servicing a Note are outlined in the article Note Buyers Love Payment Histories.
If you don’t want to hassle with payments on a monthly basis or think you may want to sell your note in the future, you may consider using outside servicing.