Did you take back a 2nd mortgage when you sold your property? Perhaps you are collecting payments as part of a structured settlement. Or maybe you're considering buying a cash flow note or taking back a mortgage. There are certain things that you simply must know if you currently collect payments, or are considering taking on payments in the near future. 1. First and foremost, you must know the value of the Note that you own or are considering buying. What is the present value of the note today? You can guess what it's worth. But would you "guess" at how much your home is worth? Of course not. Find out exactly what the note is worth by having it appraised by a Certified Mortgage Appraiser. A note appraisal determines the current worth of a mortgage using the present value approach, taking into consideration the degree of safety, interest rate, liquidity and the collateral for the note. 2. Where do you find buyers and sellers of mortgages and notes? Many individuals buy and sell cash flow notes, including the author of this article. Buyers and sellers of notes will often place classified ads in your local newspaper. Or you can run an ad to buy or sell a note. Anyone interested in getting a good return on their investment dollar is a candidate to buy your note. 3. Who is responsible for making the property taxes and insurance payments? Are the payments current? What do you do if they are not current? The person responsible for making the tax and insurance payments can vary depending on the terms of the mortgage. Before buying or selling a mortgage note, be sure to examine the terms for paying the taxes and insurance. Also verify that the policy is issued for an amount that represents at least the full value of the amount still owed on the note, and that you, as the lender, are listed as the mortgagee on the policy. 4. What should you do if the borrower fails to make a payment on time? Do not let the borrower get into the habit of making payments later than the due date or grace period. Be polite, but insist on promptness. Be sure to collect late fees if the payment is not received on time or within the grace period. Establish a no tolerance policy for late payments. If late payments persist, notify the borrower in writing of the exact nature of the default and proceed with legal action. 5. What if the borrower files Bankruptcy or has a judgment against them recorded on the property? If the borrower files bankruptcy and lists you as a creditor you will be notified by the bankruptcy court. In this case, you must stop all collection efforts. Consider hiring an attorney to advice you in this area to avoid legal problems. 6. How do I initiate foreclosure proceedings if legal action is required? Should I hire an attorney or do it myself? If legal action is required, the Noteholder has the right to initiate foreclosure proceedings. Find an attorney in your area with experience in the area of real estate foreclosure. Declaring a loan to be in default and starting the foreclosure process is a serious matter and should be handled by an attorney familiar with the laws in your state. 7. Should I periodically inspect the property that secures my mortgage note? What if the property is not being maintained properly? It is the borrower's duty to protect and maintain the value of the property until it is paid in full. However, as the lender you should drive by the property on a regular basis to insure that the property is being properly maintained. If the property is in another state, have someone you know do this for you. Deferred maintenance on a property can seriously diminish the value of you loan. |
