Buying and selling mortgage notes is all about receiving those monthly payments.
Keeping accurate records will show how much the buyer still owes along with their payment habits. Plus, it improves the value of the note to investors.
Here’s a look at two ways to tackle payment histories.
Let a Pro Handle It!
Having the buyer mail monthly payments to a third party professional is the easiest option. This outside servicing agent keeps track of the balance and sends the money along to the seller. They also issue the annual 1098 Mortgage Interest Statements and can hold original documents (like the Note, Trust Deed, or Mortgage) in safe keeping.
The DIY Method
Some sellers use the “Do It Yourself”’ method having the buyer mail payments directly to them. If sellers don’t use a third party for servicing they will need to follow these steps.
- Place original note and other original documents in a safe deposit box.
- Make a copy of each check or money ordered received (accepting cash does not leave a paper trail for note buyers to to verify).
- Keep a copy of the bank deposit slip or monthly statement reflecting the single payment deposit
- Create a ledger reflecting the date and amount of payments received
- Calculate the amount applied to interest, principal, late fees (if any), and the resulting principal balance. An amortization schedule or calculator can be helpful. Once calculated, record in the ledger.
- Send out an annual statement to the buyer or payer along with the IRS1098 Mortgage Interest Statement.
- Verify the real estate taxes and property insurance are being kept current. Consider establishing a tax and insurance escrow wherein the buyer pays 1/12th of the annual amount into a reserve account each month.
- Send collection letters as necessary for late payments.
Making Note Buyers Happy
When a note investor agrees to buy mortgage notes they will request a payment history. A verifiable payment history can improve the value of a note as it provides proof of timely payments. A payment history is considered verified when it is either provided by a third party or is backed up by the documents and records outlined.
Unfortunately many sellers fail to keep track of the payments received. When they go to sell the real estate note they try to recreate the history from memory. Without any proof of payments received, an investor has to go on faith. Sometimes a payment history affidavit can substitute for a payment record but it still doesn’t add the value of a verifiable proof.
Note brokers can help sellers protect the value of their cash flow note by setting up a verifiable payment tracking method today!