When it comes time to pay the bills we understand that we have to pay a debt to someone for a service or product we received. As a note investor for the first time, you are turning the tables for yourself and now are the receiver of a bill payment. This will probably give you a new perspective on paying bills if you haven’t already. Yet, as a first time note investor, what do you need to do to properly start collecting on your note?
How to Collect on Your Mortgage Note?
First, send a letter to the homeowner, notifying them of the transfer of ownership of their mortgage, and provide a phone number and mailing address where they should send in payments. You might also want to include in the letter an invitation to give you a call to see if there are any opportunities the two of you could discuss for them to own the home faster. (Never forget, as a debt collector you want to find ways to get your money faster, and as a debt payer you want to structure your repayment out as long as possible). Remind them that you are a debt collector and that the original contract that was signed is enforceable. Sometimes this is also a good time to remind people about the late fee policy, and how taxes and insurance are escrowed. Provide these points in bullet format in your letter so they stick out.
Build an amortization schedule of your repayments, or if you are planning on buying quite a few notes in the future, you might want to invest in a note servicing software. As a first investment, you are going to have to service this note yourself. It’s only after your volume has increased substantially will you most likely be able to have a servicing company handle it. If you google Loan Amortization Calculator you will find plenty of choices. This one has always been my favorite
Understand how payments are applied on your contract. For this you might have to refer to the details of your note, but the most common approach is to apply payments received first against any outstanding fees, second against escrow, or interest, third against either interest or escrow, again this is depending on how your contract language is, and finally against principle. This is an ultra critical step for you the note owner. You want to be fair, firm and consistent. You also want to make sure if someone is falling behind on their payments, that the contract payments that are received are properly applied.
Your final first step, is to collect a check in your mailbox or bank account, and get ready to repeat the process for a long time, which is a good thing!
Photo Courtesy: esbjorn2What Do You Do After Buying Your First Mortgage Note? by Kevin Kaczmarek