Why Do I Need Insurance and Pay History When I Want to Sell My Note?
When you want to sell a real estate note and mortgage (or note & deed of trust, or a contract for deed), you need to be able to prove that you have an investment that is performing, and the way you do that is by keeping an accurate pay history.
Save photos of canceled checks, bank statements, etc., anything that will prove that the Payor pays you on time each month. This helps support the value of your note. Most people should be using a note servicing company to keep track of payments, 1098’s & 1099’s.
The value of a note is also heavily dependent on the collateral securing the note. That’s why insurance is so important. If there is no hazard insurance, and the property burns down, the value of the note goes up in flames with the stucco.
In the event of catastrophe, the note payor will probably quit making the payments, and then you’ll have to foreclose just to have the right to pay for a demolition so you can sell raw land and recoup a tiny bit of your investment, if you’re very very lucky.
So, the lesson of the above video if you’re a note holder, or thinking of offering owner financing on a property you currently own:
- Keep an accurate pay history (paper trail)
- Make sure the buyer/payor keeps renewing hazard insurance each year and that you’re listed as Loss Payee or Additional Insured