We’ve already discussed why you should use a note servicing company in Episode 55. but today I thought I would shed some light on the things you should consider when you are in the process of selecting one to be added to your team of professionals.
Reasons to use a note servicing company
Reason #1: they make life easier for the lender, because they handle the tedious stuff like sending late notices
Reason #2: Collect and keep track of all the payments
Reason #3: they deposit the money into your account and give you a monthly statement
Reason #4: (And the very best of all) Remember, I am lazy by nature, and don’t want to spend a lot of time tracking the loans I make or chasing borrowers. They have people who will do it for you and the borrower pays the fees! You pass along the cost to your borrower. They pay for you not to be inconvenienced by your own investment. Sounds good to me – I really like it that idea!
“Note all companies are not the same” ? Nobody is going to call me out onto the carpet for that one? That has to be the worst subtitle I’ve ever created for any episode. Well, I’ll give you that it is the most dad-like joke I’ve crafted (I hope)!
Things to consider when selecting a note servicing company
1 -Do they service your type of loan?
- Installment sale: Owner Finance notes/Wraps
- Mobile Home/Manufactured Housing loans?
- Multi-Investor Loans (aka Fractionated Loans)
2 – Do they provide additional services that your loan instrument may require?
- Impound/Escrow services for repair draw payments (not just taxes and insurance)
- Do they report to any credit bureaus?
3 – What is included with the standard or basic servicing fee?
- Welcome Letter to Borrower
- Payment coupons / online payments accepted?
- How often are payments processed?
- How long is the clearing period before disbursement of my funds?
- How are funds transferred?
- How far into the late notice period before additional fees will be charged?
- How are payments applied towards an account? Interest first, then additional principle, or any extra to be kept in escrow account?
- Reporting mortgage interest to the IRS (1098, etc.)
4 – BONUS – Here’s a million dollar idea for you:
Establish a relationship with your serving company and let them know you want to buy partials to first-lien notes, and/or discounted notes (perhaps non-performing). If they have a customer or associate
Also, let them know you want to sell notes and partials to re-capitalize your funds more quickly. You may be able to use the servicing company to help you find not just prospects but real leads, and also sell to their customers or associates.
Basically, what I’m saying is do a little legwork and networking. Make an effort to establish relationships and watch the leads come in.