With the documents reviewed and the purchase decision made, it’s time to instruct the settlement agent, a title company or attorney, on how you want settlement handled. The instructions vary depending on whether you are keeping or reselling the note.
Settlement instructions when you resell the note
Assume you are reselling. Tell the settlement agent you are buying a note from party A and simultaneously reselling it to party B, and give these instructions:
- You want separate but simultaneous closings. You don’t want either party to know who the other is, since they might go around you on future transactions.
- Your purchaser’s money will fund the transaction, so the purchaser’s funds must be in escrow and authorized for disbursement before settlement.
- You require a double recording, with your ownership recorded before the resale to your investor. That way you actually own the note before you resell it.
- Your purchaser’s requirements must be fully met before closing, so nothing keeps your purchaser from settling as scheduled.
- Per the contract, funds are not to be disbursed to the seller until proof of recording of the resale to the note investor has been received.
- The settlement agent should coordinate the closing, stay in touch with all parties, and tell you if anything else is needed or is delaying settlement.
- Tell the settlement agent about any other documents you require at settlement, such as title insurance or affidavits, so they have time to respond. If you want post-closing work beyond the norm, mention it now. Beyond that, the agent should know how to handle the rest.
Confirm the seller has the right to sell
Sometimes there are special considerations. In each of these cases from my files, the key question was: does the selling party have the right to sell all right and title to the note?
- A divorce note. Whenever you see a note created by a divorce, your first question must be who has the right to sell it. In this case the seller had a court order authorizing the sale, and I made it part of the closing package.
- A different name on the note. The payee named on the note was not the person selling it. The seller turned out to be the payee’s sister. Did she have the right to sell? I required a power of attorney authorizing her to act on her sister’s behalf.
- A note held by a corporation. I bought a note on property held by a developer. The note was held not by him personally but by a corporation he owned 100%. Despite his ownership, the corporation owned the note, and he had no authority to sell it on his own. It took a resolution from the board of directors (he and his wife) to authorize the sale. The original resolution is in our file with the rest of the loan package.
If a note is held by a legal entity such as a trust, partnership, church or estate, make sure the person signing has full legal authority to sell the note.
Plan your week with an activity sheet
Here is a sample weekly activity sheet. Use it as is, modify it, or ignore it. But if you ignore planning, chances are what happens won’t be of your choosing.
For over 30 years I heard my mother-in-law say, “Just wait ’til my ship comes in.” She waited and waited, and sadly passed away without her ship ever coming in. Instead of acting, she waited. She no longer has the choice. You do. Don’t wait: plan for and take the active steps to make your ship come in now.
Weekly activity sheet (week ending: ________)
| Actions required | Date | Goal | Accomplished | Results |
|---|---|---|---|---|
| Advertisements | ||||
| Courthouse | ||||
| Rotary, Chamber and similar meetings | ||||
| Mailings | ||||
| Re-contact “on the fence” note holders | ||||
| Networking contacts | ||||
| Transactions pending and follow-up | ||||
| Transactions closed | ||||
| New inquiries generated | ||||
| Additional education, CPA, attorney or research needed |
At the bottom of the sheet, answer one question each week: how many people did I tell this week that “I buy mortgages”?
