Written by Jeffrey R. Armstrong – President/Owner of Armstrong Capital
Your favorite Master Note Buyer – Straightforward, Honest, Fair…
As a note broker a lot of our time is put into marketing and finding the notes and note holders. Success often depends on what we do once we find the note holders and they accept our offer. What do we do after they say yes? Let’s review the steps to the “traditional process” for a moment: we find the prospect, gather the information on a worksheet, submit it to our favorite Master Broker and a couple of funding sources, receive back quotes and options, subtract our fee, present the adjusted offer and assist with closing. Assuming that our note holder has accepted one of the options we gave to him, in between presenting our adjusted offer and assisting with closing, there are several more steps that are necessary before we send the complete package to the funding source. After the note holder has accepted our offer we need to have the note holder sign our Mortgage Purchase Agreement and gather copies of the pertinent documents and information to send to the funding source so the funding source can start their due diligence.
The Mortgage Purchase Agreement is an absolute essential document that you need to have the note holder sign acknowledging his acceptance of your offer. The statement that, “(your company) as the Buyer and/or assigns” should be included in your Mortgage Purchase Agreement. When you submit the complete package to the funding source you will essentially be assigning your Agreement to the funding source so that they now have the right to purchase the note for the same amount with the understanding that the difference between their quote and what the seller accepted will be your fee. There are many different Mortgage Purchase Agreements that note brokers use. Some are several pages long and others are shorter. There is a good example of a Mortgage Purchase Agreement in the ACFA Resource manual that is a couple of pages long. For my purposes I use a simple one page Mortgage Purchase Agreement.
In addition to having the note holder sign your Mortgage Purchase Agreement you need to collect a few copies of documents to complete the package. A complete package will contain a copy of the recorded Security Instrument, a copy of the signed Promissory Note, a copy of the Settlement Statement, a copy of the Title Insurance Policy, a copy of the Hazard Insurance on the property, a copy of the Payment Record and the payor’s Social Security Number(s).
The RECORDED Security Instrument might be a Deed of Trust, a Mortgage or a Land Contract. I capitalized the word recorded because the copy we need to have must be a copy of the original that the county recorder put its stamps on (usually date, time and book and page numbers). Look at the copy when you receive it to verify that it is the signed and recorded copy before you send it to the funding source.
The Promissory Note might be a Promissory Note, Real Estate Lien Note, Mortgage Note or other. Look at the Note to verify that it is signed by the payor. Also verify that the terms on it (such as the note amount, length, interest rate, payment amount, etc.) match what the note holder told you previously when the quote was given.
The Settlement Statement might be a HUD 1, Closing Statement or Settlement Statement given to the note holder when he sold the property. The Settlement Statement will show the sales price, down payment, the seller’s note and all expenses deducted from the sale. It will also show the property address, date of the sale, as well as the buyer and seller information. Look at the Settlement Statement to verify that the sales price and down payment match what the note holder told you previously when the quote was given.
The Title Insurance Policy might be a Lender’s Title Policy, Mortgagee’s Title Policy, ALTA Loan Policy, Owner’s Title Policy or other. Look at it to verify that it is an existing Title Policy and NOT a title commitment and that the note holder’s Security Instrument is listed as the insured for the note amount. Sometimes note holders will get a Title Commitment or a title search done but not pay the extra money to get the title policy. You can also check to see if a title policy was issued by looking on the Settlement Statement. If a Title Policy was not given at the sale there is no need to get a copy of something that doesn’t exist.
The Hazard Insurance (insuring against fire, flood, etc.) might be a copy of the declarations page or the name and phone number of who the owner of the property (payor) has insurance with. If you get a copy of the declarations page look at it to verify that the insurance is currently in force (not expired) and that it is insuring the subject property for at least the balance of the note we are considering purchasing.
The Payment Record might be a copy of a ledger that the note holder has been keeping track of the payments coming in by date and amount, deposit slips, bank statements, a current statement from a servicing company or other. Look at the payment record and verify that all of the payments have been made on time and for the correct payment amount, if the current balance matches the balance that was on your worksheet and if any extra principal reduction payments were made that might affect the current balance.
The payor’s Social Security Numbers would be their exact Social Security Numbers and exact current address, especially if the subject property is a non-owner occupied property, commercial or land. If the Social Security Numbers can not be acquired we may be able to check their credit if we have a current AND a previous address (this does not work most of the time).
If the property is a mobile home we will also need a copy of the mobile home title(s) or proof of attachment. If the property that the note is secured by is a condominium, land or commercial property there are some additional questions that need to be asked and information that will be needed.
Well, that is a very brief and quick look at what a complete package would contain. After you have compiled all of the necessary copies of documents you would then put a nice cover letter on it and send the entire package to the funding source for approval and due diligence. If you would like a copy of my one page purchase agreement along with a list of the copies of documents needed to submit a complete package after acceptance of a quote feel free to visit my website at www.armstrongcapital.com and click on “Note Brokers”. There you can download and print out my Broker Package that these items are included in. Additional information about making a complete package can be found in my book “Scripts and Tips”. Good luck and I hope this helps you on your path to success!