You sold your property with seller financing and now you need to invest your time for your mortgage note care. Your mortgage note is a financial asset and of significant value, so it is important that you spend time and paperwork protecting it. Mortgage note care is just a series of steps that you need to take and it really is not that difficult. But, to do this right you need to be disciplined about it.
8 Steps For Mortgage Note Care
Step 1 – Safeguard Original Documents. Your mortgage note consists of two basic documents: A Promissory Note and a Property Mortgage (or Trust Deed). The two documents originals need to be stored in a safe, a fireproof box or safe deposit box at your bank. You should keep copies of the documents at home for your reference. If the title company or attorney that worked with you on the property sale have the originals you should request their delivery to you.
Step 2 – Record Payment History. You need to maintain an accurate history of the monthly payments you receive from the property buyer (Borrower). A Mortgage Payment Record Form is available here. When you receive payments you should deposit them into your bank account so that you have a verifiable record of when you received and processed the payments. It will be also be helpful if you keep the payment checks and bank deposits as well. In the event that there is a delay in payment from the Borrower, having this information on hand will help back you up if there is a disagreement.
Step 3 – Property Taxes. Until the promissory note is paid off by the Borrower, you need to ensure that the property taxes are paid to avoid any potential lien on the property by the tax authority. (This will be ahead of your lien as the property owner.) If the Borrower is paying the property taxes via an escrow company, they will inform you if there is a lapse in payment. Otherwise you will need to check with the tax authority the status of the property taxes. In many instances this can be done online, otherwise simply make a telephone call with the property information for reference.
Step 4 – Homeowner´s Insurance. The property basically is your security that the Borrower will pay the Promissory Note. Therefore you need to ensure that there is a current homeowner´s insurance policy covering the balance of the note. You need to be listed as the Lender or Mortgagee, so that in the event of a disaster (e.g., fire), you get paid buy the insurance company first, not the Borrower. You should have the insurance company contact information so that you can verify that the policy is current.
Step 5 – Property Maintenance. The Borrower is responsible to maintain the property in good conditions. The Borrower will also be motivated since he/she is building up equity in the property. Remember that the property is the “glue” that ensures payment of the Promissory Note. You should check on the property either by personally doing a “drive by” or having someone you know do this. If the property looks like it is not getting the maintenance it needs, it is a warning signal for you.
Step 6 – Income Taxes. If the Borrower is living in the property as his primary residence, you need to provide the Borrower the amount of mortgage interest paid during the preceding year prior to January 31. To determine this amount you just need to sum up the interest payments in the amortization schedule of the note.
Step 7 – Late Payments. If the Borrower is late making the monthly payments, you will need to contact the Borrower via telephone to insist on payment. You should maintain a ledger for ALL COMMUNICATION with the Borrower with date, time, topic discussed and pending actions noted. You should follow up with a certified letter summarized any action the Borrower has promised to perform. If the payment delay is not corrected, call your attorney.
Step – Borrower Default. You should anticipate and clearly understand your options in the event the Borrower does not make payments and defaults on the Promissory Note. After you notify the Borrower that he/she is in default, you can declare the remaining note balance to be due and payable. The process to regain possession of the property will depend upon how you structured your seller agreement. You should understand and prepare before this happens.
Mortgage note care requires that you invest some time and paperwork working with the property buyer. This process is not difficult but requires discipline and attention to detail. Since your mortgage note is a valuable financial instrument, it is worth your time and effort.
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