Archive for the 'Note Holder Tips' Category
The Ten Commandments of Private, Hard Money or Seller Carry Back Lending
July 5th, 2008 categories: Note Holder Tips, Seller Financing
These 10 spiritual principals were received by James M. Allen in 1993 on top of Mt. La Jolla, California. Originally created
for the edification of private hard money lenders, the principles largely apply to any seller thinking of becoming the bank on their own property:
1. ALWAYS take possession of the original note.
2. ALWAYS make sure that the deed of trust is recorded.
3. ALWAYS make sure that you have title insurance showing your deed of trust in the proper priority.
4. ALWAYS make sure that you record a “Request for Special Notice” with respect to all senior deeds of trust at the time you make the loan, and promptly when your address changes.
5. ALWAYS personally inspect the property which is security for your deed of trust. Would you like to own this property in this neighborhood?
6. NEVER lend money on a deed of trust where you cannot afford to keep prior payments current while you foreclose your own deed of trust.
7. ALWAYS insist that the note and deed of trust show you as the original beneficiary on a new loan, not the broker who arranges the loan.
8. ALWAYS make sure that the note is assigned by separate assignment on the note or permanently attached to the note, and by recorded Assignment of the deed of trust when you are buying a “seasoned” note.
9. ALWAYS keep your original notes and deeds of trust in safe deposit boxes, or in similarly secure environments. You can keep copies in your files for working reference.
10. ALWAYS make sure the property taxes are paid current, that prior deeds of trust are kept current, and that hazard insurance is adequate, in force, and premiums are paid current.
My friend, I testify that if you will heed these principles, and your attitude improves greatly, you will one day enter Seller Financing Heaven. Hallelujah and Amen.
Related Reading:
- Please help me create a good real estate note
- If I Carry, How Will Capital Gains Work?
- I Want to Sell my Note
- I’m Going to Provide Seller Financing, How Do I Create a Good Note?
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With or Without Recourse? Clarifying the Endorsement When You Sell a Note
June 12th, 2008 categories: Note Holder Tips, Selling Your Note
You should practice safe recourse, or at least be aware of the risks if you don’t. When I buy a note, I need to have the note properly endorsed to me, very much like a check is endorsed from one person to another:
“For value received, pay to the order of Little Johnny Cakes,” signed and dated by the note seller. This is written on the back of the note, or on a separate piece of paper that is then permanently attached to the note (an allonge). But there’s another aspect to the endorsement . . .
After identifying the new owner of the note, it should say “with recourse” or “without recourse.”
June 12, 2008
For value received, pay to the order of Dawn Rickabaugh, with recourse.
Sigmond Seller:_____________________________________
With Recourse:
If the endorsement includes the words “with recourse,” it means that the note seller is guaranteeing the note. If the Payor doesn’t make the payments, the note seller is agreeing to make the payments to the keep the note buyer whole.
If I’m the note buyer, then I would want the seller to agree to a recourse loan . . . that adds another layer of protection for me. If a seller is willing to endorse “with recourse” it probably means he is expecting the note payments to keep coming in, and is not hiding some known problem with the note.
Without Recourse:
A note sold “without recourse” means that the note seller doesn’t have to be on the hook for the money if the payments stop coming in.
If I’m the note seller, I would probably want to sign “without recourse.” I don’t want to take a big discount and then have to guarantee the note payments as well. It’s a point of negotiation between buyer and seller.
The silent endorsement: if nothing is mentioned about recourse either way, guess what? The note is sold with recourse . . . that’s the “default” setting. Sellers are often unaware of this, so it can become a point of contention if the note buyer all of a sudden starts demanding payments 2 years down the road when a problem arises.
It’s just better to discuss it and establish it clearly within the endorsement on the back of the note. As always, it’s best to consult with an attorney to understand the complexities and variations in your state.
Related Reading:
- How to Endanger the Sale of Your Seller Carry Back Note: Lose the Original
- Insist on Insurance When You Create a Seller Carry Back Note
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How to Endanger the Sale of Your Seller Carry Back Note: Lose the Original
June 5th, 2008 categories: Note Holder Tips, Seller Financing, Selling Your Note
I guess you can always say the dog ate it, or a tornado snatched it into the sky when you were in Nebraska visiting Aunt Dorothy and Uncle Toto, but the truth is, you may not be able to sell your note if you can’t produce the original.
The original note is the “green stuff,” it’s the currency, it’s “the thing you’re selling.” A copy just won’t do! The original John Henry (signature) of the Buyer/Payor, even if it’s not very attractive, fluid or sophisticated, is the silver lining in your paper.
And it kind of makes sense, doesn’t it? Would you be able to pay your mortgage by sending in a nice copy of your check to Bank of America? Or Bear Sterns, or Lehman Brothers? (OK, maybe the last two . . . they’re used to losses these days and probably wouldn’t notice).
If I’m buying your note, I want to be the legal holder of the note, so I need:
- the original note in my possession
- the note properly endorsed to me (”For value received, Pay to the Order of Dawn Rickabaugh, with recourse” and it must be signed and dated by the Note Seller)
If the original note is in my possession, and is properly endorsed to me, then I am a holder-in-due-course, which gives me some substantial protection should any legal issues arise.
Right now I am working with a probate attorney in Los Angeles who is liquidating an estate holding a $500,000 seller carry back note, secured by a commercial property in Redondo Beach. I was able to offer the estate more than the Payor on the note was offering.
When I last spoke with the attorney, he said all the beneficiaries/heirs were scrambling to find the original note. No one knew where it was. Perhaps the escrow company still has it in their file, but they really need to find it, or things get a lot more complicated.
Do yourself a favor, when you carry back paper: keep the original note, deed of trust, Buyer’s credit application (1003) and credit report all together in a very safe place. And keep a very good payment history to be able to prove that you have a performing asset.
- I’d Like a Professional Note Appraisal
- I want to carry paper, please help me create a valuable note
- If I Carry Paper, How Much Will I Get Each Month?
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Related Reading:
- Other Note Holder Tips You Might Want to Know About
- How Does the Market Determine the Discount I Take on My Note?
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