A Note Buyers Checklist

by | BiggerPockets.com

Buying a seller financed note is, in some respects, not much different than buying a piece of real estate. You want to be sure it’s a solid investment, all the pieces are in place, and you have some level of protection. In this week’s post, I want to give you a checklist of things you always need when buying a seller financed note. This list will ensure that you have all the key elements for a successful purchase.

Property Appraisal: Taking the seller’s word for property valuation is never good enough. Always get an independent third party to give you an accurate value of the property. This tells you if there is enough equity in the deal for you. Not to mention, the appraisal can come in handy if you decide to resell the note quickly.

Title Insurance: The name says it all. When transferring title of the property and the note, you as the buyer need to make sure the underlying asset is free of any encumbrances or liens you might not be aware of. Title insurance only protects the buyer of the property at the time of purchase. Therefore, when the seller bought the property they bought title insurance to protect their interest.  It is not transferable. You need to make sure you buy a new policy at the time of your transaction so you are protected.

Property Deed:   While you are purchasing a note secured to a property, you are also taking ownership of the property. You need to make sure the seller gives you the deed to that property. This is key to all aspects of the note transaction. Furthermore, it gives you the ownership rights of the property in case of forfeiture by the homeowner.

Assignment of Contract: The assignment of contract will detail what the note’s current value is, the terms of the note, and what portion of interest you are purchasing. These final pieces of information will wrap up all key aspects of the transaction ensuring that you the purchaser are getting what was offered in the first place.

Property Insurance: Immediately after your purchase of the note, you should ask the person who lives in the home to give you a record showing that the insurance is paid to date. The policy should always have you named as “additional insured”.  If anything ever happens to the property, you will be protected as the “additional insured”.

This short but critical list will help you navigate the purchase process of a seller financed note.

Have you had an experience where one or more of these items was not included in your note purchase? I would love to hear your story and I appreciate your comments and feedback.

Photo Courtesy: iStockPhoto Royalty Free Stock Photo Image

About Author

Kevin Kaczmarek is President of Capital Blueprints, LLC. Serving a national and international client base, Kevin helps clients achieve their personal goals for long-term stability and solid financial growth through Self Directed IRA Investments and individualized Passive Income Strategies.


  1. Say you are doing owner finance and wrapping multiple loans. You have multiple 4 unit buildings under one insurance policy.

    The seller wrapping the loan and providing owner finance to the buyer has a few questions.

    If the underlying mortgages require escrowing taxes and insurance then on the wrap you would just escrow that amount in to the note you are creating correct?

    What about the insurance?? What happens if you become the bank on a wrap to the new buyer and your underlying mortgages require you to have insurance on those loans.Do you add the new buyer as an additional insured??

    Won’t that tip of the banks you are doing owner finance with a wrap and they can call the note?


  2. Brandon Wong on

    Hello Kevin,

    I’ve noticed you have a great deal of experience with non-performing notes as. I have a non-performing note I wish to begin foreclosing on, it is a second (line of credit) that became the first and I am having difficulty understanding calculation of a reinstatement amount. With a standard closed-ended mortgage I typically amortize the original loan amount with the original loan interest rate to come to a conclusion of a principal/interest monthly back payment and multiply that by the number of delinquent months since the default date and then just add the 5% monthly late fees per the note. However, with a HELOC you don’t have a fixed interest rate. How do you typically go about calculating your reinstatement for a line of credit? My attorney needs this to send the demand letter to begin the foreclosure process. If you do not wish to answer, please refer me to an article or knowledge base. I can’t seem to find anything in BP as this is kind of an abstract question that a more seasoned investor could answer. Thank you for any advice you could provide.

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