Note Servicing

Account servicing and proper note maintenance ensure that note holders can always find pertinent information.

Note servicing basics and Long-term maintenance.

Below are the essential items for long-term maintenance or successful servicing
of any private mortgage note or contract for deed. This information has been gathered
from time-tested experience in our company’s 25+ years of purchase and servicing notes, mortgages, and land contracts.

Why do we need current note servicing records?

• Accounting and tax reporting.
• Insurance underwriting and homeowners’ insurance purposes.
• Estate planning or a death in the family
• Banking needs, such as refinancing or consulting with a financial advisor.
• Liquidating their asset with a partial or full note assignment.
• Obtaining any necessary documentation will be quick and easy, regardless of the reason.

Servicing items that should be maintained monthly:

1. Payment History – Monthly records should be accurately documented for payment verification purposes. Retaining copies of checks or online bank records would be Ideal.
2. Hazard/homeowners insurance: Verify it at least once a year.
3. Annual property taxes should be up to date and verified yearly.
4. Delinquent county and state taxes take precedence over a 1st-lien mortgage in many states.
5. Year-end personal taxes – Interest collected must be reported annually.
6. HOA dues – Homeowners Association (HOA) dues must be up to date. Many states allow HOA dues to take precedence over a mortgage’s first lien position. This allows the HOA to foreclose on properties for nonpayment when they enforce the lien.

Why accuracy is crucial when servicing a note:

Accurate Account tracking will increase the cash-out value. The current balance of the note can be calculated and tracked using an amortization schedule. If you are having trouble calculating the principal balance or payments of your note, we can help. If needed, we will prepare an accurate amortization schedule to reflect your proper note balance. Please give us a call anytime; we can prepare a schedule for you at no charge.

After a real estate sale, the note holder is the only party with access to the related loan documents and payment records. The closing agent, usually a title company or an attorney, has no ongoing role once the transaction is completed.

Their duties are limited to facilitating the transfer of title, managing escrow, ensuring that all conditions of the sale are met, and recording the necessary documents. Once the sale closes and funds are disbursed, their involvement ends. Contrary to common belief, title agencies and attorneys do not retain access to or monitor a note holder’s private records after closing.

Closing agents are not responsible for collecting payments, maintaining account histories, or managing the loan over time. These records are private and remain confidential between the note holder and the borrower (or the servicing company hired by the note holder).

Therefore, note holders should retain copies of all closing documents, establish a system for collecting payments, ensure the proper recording of liens and assignments, and monitor taxes and insurance, as applicable.

Retaining documents for easy reference:

• Closing or Settlement statement: This is prepared by the closing agent/Escrow Officer.
• Original Promissory Note held in a secure location.
• Homeowner’s insurance policy: The note holder should always be listed as the loss payee and additional insured.
• Manufactured home title: Title work or transfer documents showing the note holder as a lien holder.
• Purchaser as registered owner.
• Payment history: Generally, the note holder should document the payment records for each month.
• Maintaining a record of your payments is easier than you might think. Keep a copy of
  Each check or online bank record shows monthly deposits. This simple step can go a long way in ensuring the accuracy of your records. Keeping these records will simplify the end-of-year tax process when it is time to report interest.
• Property Tax – Access county records quickly with county info on hand. This will show
  the property parcel number or APN and property address. Keep the printout in the account folder.
• HOA – Retain the HOA contact information for quick review to verify dues are current and paid.

Third-party Account Servicing for a Mortgage Note.

We encourage every note holder to engage a third-party payment collection
company to handle their payment processing.

The servicing agent will keep the original note and mortgage in a safe location and also provide the note holder with several benefits, including:

• Collecting and processing payments accurately.
• Reporting interest to the IRS by mailing the required 1099 at year’s end.
• Options to process monthly payments via ACH or auto-deposit
• Collect and pay the required county property taxes, with notice by mail to the note holder.
• Collection of and maintenance of hazard insurance for verification that the property has fire hazard coverage. Some companies may also offer the ability to force-place insurance if necessary.
• Default collections as well.

A loan servicer also manages important related events, such as early payoffs. When a note is paid in full. Whether because the borrower refinances or sells the property. The escrow officer typically requests a formal payoff balance from the servicer. Once the transaction closes, the final proceeds are sent directly to the servicer, who applies the funds and finalizes the account.

At this stage, the note holder has minimal involvement. By using a professional third-party loan servicing company, the note holder can place the loan on “autopilot,” ensuring that all payment processing, payoff requests, and record keeping are handled efficiently and accurately by experienced professionals.

Every month, we encounter a note seller who has failed to take basic steps to document their monthly payments, confirm the property taxes and hazard insurance are current and up to date. Searching for these items can consume valuable time, slowing down the note sale process.