Despite a few dustings of snow here and there, we really are in Spring.
Spring means we can put away the Winter coats, fire up the BBQ, and even do some Spring cleaning around the house.
If you are going to spend some time in the attic rearranging holiday boxes and grandma’s old books, why not spend a few minutes on your personal finances?
Specifically, any real estate notes you may be holding.
Although we have a complete list of things you can do to improve the value of your note, here are five quick things to focus on this Spring.
Spring Cleaning Your Real Estate Note
1) Are Your Payments “Outside Serviced?”
In the real estate note industry, “outside serviced” typically refers to outsourcing the servicing of a mortgage or loan to a third-party servicing company.
That is a company that collects the payments each month and then forwards any monies due to the seller.
In addition to tracking the borrower’s payments and unpaid balance, they may also handle any delinquencies, escrow reserves, or tax reporting.
The reason outside servicing is also so important is if at any point you would like to sell your note for a lump sum of cash, an outside servicer is the perfect partnership that verifies the buyer’s payment history.
You can find a list of outside servicing companies in our Funder Directory.
2) Where is the ‘Original Note?’
In real estate notes, an “original note” typically refers to the initial promissory note signed by the borrower (mortgagor) payable to the seller (mortgagee).
The original note contains the loan terms, including the principal amount borrowed, the interest rate, the repayment schedule, applicable fees or penalties, and other relevant terms and conditions.
Think of it like an IOU or even a check. It is a legal document in its own right. The payer on the property is signing a “check” agreeing to pay you over time. It should be stored in a safe place (like a safe deposit box).
This leads us to the original question: “Do you know where your original note is?”
3) What is the Condition of the Property?
Getting eyes on the property is always a good thing.
Have there been any changes since the new buyers moved in? If so, hopefully, they are good ones.
Many times, you will see that the buyer has made improvements. These might be as big as a new roof or a fresh paint job or as small as trimming up some trees or light landscaping.
Those are a ‘plus’ when it comes to your underlying security. But there can be another side.
You might see some deferred maintenance or a lack of pride in ownership. In itself, that is not really a problem in the short term…but it could be a problem in the long term if you ever have to take back the property or you go to sell the note (and the new investor checks it out).
If you don’t live locally, you can also check the Funder Directory for a list of companies that can do a physical property check through a drive-by inspection.
4) What about the Property Taxes?
Do you know if the borrowers are keeping up with taxes?
The good news is that most buyers keep up with the property they purchased and keep their taxes current. But there are plenty of cases where they are behind on taxes…
…as the note holder, you need to know this so you can take action and correct it before it becomes a more significant issue.
A lot of these types of things can be done online. To check taxes…
- Visit the County Tax Assessor’s Website: Most counties have an online portal to search for property information, including tax payment status. Look for the county tax assessor’s website for the specific county where the property is located.
- Search for the Property: Use the search function on the county assessor’s website to find the property in question. You may need to enter the property’s address, parcel number, or owner’s name to locate it.
- View Property Tax Information: Once you’ve found the property, look for a section or tab related to property taxes or tax information. Details should be available regarding the property’s tax assessment, including whether taxes are paid up to date.
5) Is Property Insurance Active — with You as an Additional Insured?
Chances are, you set up your sale with taxes AND insurance being escrowed.
Meaning that each month the buyer makes a payment, that amount includes the amount needed for taxes and insurance. This is typically called PITI (Payment, Interest, Taxes, Insurance).
Your third-party servicer then forwards the money to the insurance company (typically every six months), thereby keeping your insurance active. You can check in with them to be sure everything is still on track.
If property insurance is not handled through a servicer, then you can reach out to the borrower and ask them to send you a copy of the Declaration Page from their provider that shows them as the owner or primary insured and you as the mortgagee or lender.
It’s a great time to check on insurance now — instead of when you need it.
That’s It! Note Holders, It’s Time for Some Spring Cleaning!
For many people, a real estate note is a significant asset. You may continue to receive monthly payments, or you may decide to sell it for a lump sum of cash sometime in the future.
In either case, a bit of Spring Cleaning of your note will keep your cash flow dust-free for years to come!
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