Not every note holder wants to sell. Some won’t accept your quote at any price that makes sense. This lesson, from a note servicing company, shows one way to keep the relationship and still earn something: buy a year of payments at a time instead of the whole note.
How a servicing company found the niche
We started in 1985 as Escrow Services of Louisiana, mainly servicing bond for deed contracts, which is Louisiana’s term for contracts for deed. Louisiana law requires an escrow agent for those contracts. Since that’s a form of seller financing, we eventually began servicing notes, mortgages and other seller-financed instruments, and in time took on servicing agreements for privately held notes from Texas to Pennsylvania.
Being in the servicing business, we found that many of the note holders we serviced weren’t interested in selling their paper. But many were interested in borrowing money against it from time to time.
The 10 for 12 program
So we started what we call a “10 for 12” program. The note holder assigns 12 months of payments to us, and we pay them once a year, in advance, an amount equal to 10 payments.
Many note holders like getting a $5,000 check once a year rather than a $500 check once a month. It lets them pay school tuition, taxes or whatever else they need the money for. And it has certainly simplified our servicing.
Real estate agents like it too. When they sell a property with seller financing, we can provide funding right at the closing table by buying the first year of payments. That money can pay part or all of the seller’s closing costs, which makes the closing go a lot smoother.
How the broker gets paid every year
We pay note brokers, real estate agents and others who bring us notes for the program 4% of the amount we fund.
I spent 10 years in the life insurance business and borrowed an idea from it. Every time a client renews a policy, the agent gets a “renewal,” a percentage of the premium. I kept getting renewals even after I left the field. So we set up the brokers’ referral fee on the same formula: we pay the broker every year that we buy the note payments.
