How do you keep the note seller from discovering the amount of your fee? With the paperwork done, you are finally ready to go to settlement, and the way settlement is run answers that question.
Let’s look at the settlement process two ways: first as if you will resell the note, then as if you will keep it for your own portfolio. The steps are much the same, though a note purchaser will usually take care of some of them itself.
Keep the parties apart at a resale settlement
In a resale, when everyone arrives at the settlement office, you should either have two separate conference rooms, or the settlement officer must be very careful not to accidentally reveal information you don’t want the other parties to have.
A typical resale settlement, step by step
Here’s how one of my typical settlements worked. I was the broker, and my company is The Wellington Company, Inc. My institutional buyer (call it “Astropolitan Finance”) had sent a check to the settlement attorney in advance for the agreed price of the note. The note sellers arrived with the original note and the original deed of trust. We were shown into a conference room, the sellers on one side and I on the other.
- The attorney asked to see the original note, looked at it, and handed it back. “Please turn the note over and endorse it as you would a check. Just write ‘Pay to the order of The Wellington Company, Inc.’ and both of you, husband and wife, sign and date it.” He then took back the note and deed of trust.
- He handed the sellers an assignment agreement assigning all right and title to the note to The Wellington Company, Inc. Then he said, “Since The Wellington Company is paying all settlement costs, that’s all we need from you. You’ll get a check in a few days.” The sellers left.
- Notice that no prices, check amounts or the name of my purchaser were ever mentioned.
- The attorney handed me the note, which at that moment belonged to my company, and told me to endorse it right under the sellers’ endorsement: “Pay to the order of Astropolitan Finance, Inc.,” signed as president of The Wellington Company. I then signed an assignment agreement transferring all right and title to Astropolitan.
- The attorney said he would cash my buyer’s check, pay the note sellers from the proceeds, deduct the settlement charges and mail my company a check for the remainder, my profit.
Before leaving the room, I confirmed that he would record both assignments in the order they occurred and send me proof of recording and a full documentation package on both.
That’s it. Unless your note purchaser requires something more, settlement is done. Anything extra is usually handled between the attorney and the purchaser, or by the purchaser directly. Most people find the first few transactions a bit intimidating, but once you’ve done a few, it’s so simple it’s almost boring.
Settlement when you keep the note
If you plan to keep the note, the sellers endorse it to you, your check goes to the attorney, and the reassignment steps above don’t happen. The attorney gives you the original assigned note and deed of trust and records the assignment in your name. After recording, the original recorded assignment should be returned to you.
Recorded documents can take several weeks to come back. The transaction above took more than 10 weeks. If you get concerned, check with the settlement attorney or call the recorder’s office to ask what the turnaround time is.
You now own the note, but you aren’t finished with the paperwork. The final part of this series covers what you need in hand before you leave the settlement table.
