When You Want to Sell Your Note Provide Pay History and Insurance
Tuesday, January 4, 2011 at 03:07PM | Note Queen There's a woman in Florida who sold a property on terms, offering owner financing to a man who put down $10,000, and who has been paying her $962/month for the last 8 years on a 24-year $145,000 note.
Now she wants to sell the note to buy a piece of property all cash, and I made an offer to buy it.
Everything was going perfectly with processing the paperwork until I asked her to provide the payment history for the last 12 months, and proof of insurance listing her as Loss Payee or Additional Insured. She had neither.
He pays her with a money order, and she simply cashes it. No canceled checks, no bank statements. Because she hasn't filed tax returns for several years, and doesn't want to show any income, she stays low on the economic radar.
So how do I know whether I'm buying a performing note, or a non-performing note? Can I really just take her word for it? That's a tough one.
Regarding insurance... she said that after 7 years, she no longer required him to have property insurance, because "he was taking such good care of the property". So, if the house burned down, there would be no collateral securing the note. Or if someone hurt themselves on the property, there could be huge liability issues compromising the security for the note.
The value of that $145,000 note could evaporate overnight.
So, when you're carrying paper, and you want to maintain the value of your note in case you ever need to sell it, be sure to document the payments you're receiving (using a note servicer is a great idea), and make sure that hazard insurance NEVER lapses on the property.
Make sure each year you get verification that the Payor has renewed insurance and that you are still listed as Loss Payee.
