Seller Financing Part 2
Seller Financing Part 2 of 3: How Good Housekeeping Translates To More Money In The BankBy Thomas J. Franklin
As the owner of a note, you want to keep detailed records for potential note buyers down the road. The better records you keep; the more valuable your note becomes. Letís take a look at some of the important record keeping items youíll want to keep track of as the owner of a Seller Financed Note. PAYMENT HISTORY Establish a policy at closing that monthly payments are to be made by check or automatic monthly withdrawal from their bank account. Money orders and cash are not ideal payment methods because there is ambiguity as to whether the purchaser paid the monthly payment or money just got deposited to show a payment was made. Each month when you receive that payment by check, make a copy of the check and keep it in your file. Good payment history is just as important as Loan to Value and down payment as far as criteria for selling a note.
When A Note Buyer purchases aw the homeowner has made their monthly payments. However, if the Note Buyer doesnít get the last six months payment history there is no way to verify this fact. Investors can buy what they believe is a performing note at a great price only to find out itís a non-performing note they overpaid for. APPRAISAL/ BPO At the time of sale, an appraisal should be done to show your sales price and the appraised value is in line with each other. As mentioned, Loan to Value is a big factor in your noteís market value. The appraisal will be the document to back that up.
Because many investors are purchasing REOs and flipping them, this has flooded the market with bad paper. As a consequence, many Note Buyers are requesting a BPO (Brokersí Property Opinion) report to providing a quote to purchase. A BPO is the estimated value of a property as determined by a Real Estate Broker or other qualified individual or firm. A Broker Price Opinion is based on the characteristics of the property being considered. Some of the factors that a broker will consider when pricing a property include: the value of similar surrounding properties, sales trends in the neighborhood, an estimate of any of the costs associated with getting the property ready for sale and/ or the cost of any needed repairs. It is important to note that a BPO is not the same as an appraisal.
INSURANCE RECORDS Always require your purchaser to obtain a one year insurance policy with you named as an additional insured party. One pitfall to avoid is allowing your purchaser to pay monthly on their insurance. That increases the likelihood of the policy getting canceled because they forgot to pay the bill. Remember, managing monthly insurance records can turn into a nightmare very quickly!
APPLICATION DATA Employment verification, credit reports, references, tax returns, pay stubs and other documents you gather at the time of approval should be kept in your files. These records are vital to substantiating why you approved the buyer in the first place.
REPAIR RECORDS If there were recent repairs/ improvements, note purchasers might require an itemized list of the work performed along with copies of the paid bills.
A Note Buyer purchasing a note without all the right documentation is taking a huge risk that the note is exactly what the seller has promised. The seller with detailed records will most likely sell their note at a premium compared to the unorganized seller. If you can maintain this list of records, your note will be in better standing than 90% of the notes that are originated. ďGood Housekeeping,Ē on your part, will establish your note as something worth considering for an investorís portfolio.
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