Written by Jeffrey R. Armstrong – President/Owner of Armstrong Capital
Your favorite Master Note Buyer – Straightforward, Honest, Fair…
Note Brokers put the majority of their time into marketing and finding first position seller financed notes and note holders. It has been estimated that more than 70% of a Note Broker’s time is spent on marketing alone. A note broker can’t do any transactions if they don’t find them in the first place. However much of their success often depends on what they do once they have found the note holders and the note holder accepts their offer.
What does a note broker do after a note holder says yes? Let’s review the steps to the process for a moment: a note broker finds the prospect, compiles the information on a worksheet, submits it to their favorite Master Broker and a couple of funding sources, determines their pricing or receives back prices and options, subtracts their fee, presents the adjusted offer to the note holder and assists with closing. Assuming that their note holder has accepted one of the options the note holder has presented them with there are several more steps that are necessary before a note broker sends the complete package to the funding source. After the note holder has accepted an offer a note broker needs to have the note holder sign an initial Mortgage Purchase Agreement and gather copies of the pertinent documents and information to send to the funding source so the due diligence process can begin.
The initial Mortgage Purchase Agreement is an absolute essential document that a note broker needs to have the note holder sign acknowledging his acceptance of the offer. The statement that, “(your company) as the Buyer and/or assigns” should be included in your initial Mortgage Purchase Agreement. When a note broker submits the complete package to an investor or funding source they are essentially assigning their Agreement to the funding source so that they now have the right to purchase the note for the same amount with the general understanding that the difference between the funding sources price and what the note holder accepted will be the note broker’s fee. There are many different initial Mortgage Purchase Agreements that note brokers use. Some are several pages long and others are shorter. For most note brokers purposes a simple one or two page initial Mortgage Purchase Agreement is all that is necessary. A lengthier final Mortgage Purchase agreement will be used when the transaction is ready to be closed and funded.
In addition to having the note holder sign an initial Mortgage Purchase Agreement a note broker will need to gather a few more pieces of information and collect a few copies of documents to form a complete package of data for the investor or funding source to review. A complete package will contain at a minimum 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). IT is not required but it is also nice to include some information gathered from the internet on potential market value, persons involved and area demographics. Let’s go over what all of these items are.
The RECORDED Security Instrument might be a Deed of Trust, a Mortgage or a Land Contract. The word recorded is capitalized because the copy that is needed must be a copy of the original that the county recorder put its stamps on (usually date, time and book and page numbers). The note broker should look at the copy when received to verify that it is the signed and recorded copy before including it in the package to the funding source.
The Promissory Note might be a Promissory Note, Real Estate Lien Note, Mortgage Note, Straight Note or other. The note broker should 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 is on worksheet 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. The note broker should look at the Settlement Statement to verify that the sales price and down payment match what the note holder stated and what is on the worksheet 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. The note broker should 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. By looking at the Settlement Statement a note broker can also check to see if a title policy was issued to see if there are any charges listed for a Title Policy. 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 the note broker receives a copy of the declarations page the note broker 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. Obviously, if the note is secured by raw land then there would be no hazard insurance.
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. The note broker should 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 is on the worksheet and if any extra principal reduction payments were made that might affect the current balance.
The buyer/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 the note broker will also need to get a copy of the mobile home title(s) or proof of attachment such as an Affidavit of Affixture or an SOL (Statement of Location). 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 may be needed.
After all of the above requested copies of documents have been obtained a note broker should do a little internet research. A note broker might go to Google Maps and Google the property address to see if you can get a bird’s eye view of the property. A note broker might go to www.zillow.com and see if an approximate market value and comparables can be obtained. In addition, a site like www.zabasearch.com might help in obtaining information about the buyer and seller of the property or just Google the buyer’s and seller’s name. It is always best to find out as much as possible BEFORE an investor starts to spend money on the due diligence for a drive by appraisal and title searches. A few other sites that might be helpful to a note broker include www.loopnet.com for commercial properties, www.capindex.com for demography and crime statistics and www.realquest.com for even more real estate information.
That is a very brief and quick look at what a complete package would contain. After a note broker receive and acceptance from the note holder and has compiled all of the necessary copies of documents the note broker would then create a nice cover letter on it listing all of the information included and send the entire package to the funding source for approval and due diligence. Good luck and I hope this helps you on your path to success!
Remember, success demands action! Keep on marketing, it’s going to work! TWITA! (That’s What I’m Talking About!)