Buying First Note through Paperstac
Brittany P.Pro Member
Investor · Upper Marlboro, MD · Member since 2022 · 54 posts · 6 votesBuying First Note through Paperstac
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Investor · Baltimore County, MD · Member since 2014 · 466 posts · 438 votes
3y@Brittany P. I agree with everything @Chad U. stated.
Just to add a little, I think the audit can be a nice supplement to your own due diligence process, especially for new note investors. But I would not solely rely on the audit, even for just for the collateral-file-review part of your due diligence process. My advice is not to buy a note yet if you don't have your due diligence process down already (whether through Paperstac or elsewhere).
Regarding the the PSA, I agree with Chad. Although you can still cancel a transaction after you've signed the PSA, that should be done in rare cases. You should be essentially ready to close once you sign the PSA. One suggestion I had was for PS to add a 2nd (middle) phase for each transaction; essentially a due diligence phase after you've agreed upon a price but before you've fully committed to closing (and signed the PSA).
49 Replies
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes3y
@Peter Walther
The original post she is buying the vendors interest not the vendees interest
Regarding title insurance / Typically in these situations the land contract will state how the vendor issues the deed to the vendee
If it’s via quitclaim or special warranty deed then in most cases the buyer (new vendor) does not get title insurance because it’s an unnecessary cost in most instances because you will be conveying title back to the contract holder and hold these loans for short period of times.
If they are in default we never obtained title insurance either - in every instance we order a full title report to confirm the chain and make sure no title defects.
7e investments53 Reviews - Specialist · Winter Springs, FL · Member since 2009 · 1k+ posts · 747 votes3y
Quote from @Chris Seveney:
@Peter Walther
The original post she is buying the vendors interest not the vendees interest
Regarding title insurance / Typically in these situations the land contract will state how the vendor issues the deed to the vendee
If it’s via quitclaim or special warranty deed then in most cases the buyer (new vendor) does not get title insurance because it’s an unnecessary cost in most instances because you will be conveying title back to the contract holder and hold these loans for short period of times.
If they are in default we never obtained title insurance either - in every instance we order a full title report to confirm the chain and make sure no title defects.
The OP appeared to be in regard to purchasing a mortgage/DOT. That morphed into a response addressing purchasing a CFD interest which I assumed, perhaps incorrectly, was the vendee's interest because I believe if it was the vendor's interest all you would need to get would be a deed. The title you received would be subject to the vendee's interest. An assignment of the vendor's CFD interest might be seen as purchasing a stream of payments, not a conveyance of the fee.
I'm not sure what part of my post your second para is addressing but how the CFD's requirement for title insurance at the time the debt is paid off, helps at the time the vendee's interest is purchased, I don't understand. By the time the debt is paid off if there's a defect in title are you just supposed to hope the vendor will give you your money back?
If you're buying the vendor's interest without title insurance, what do you do when it's time for you to convey title to the vendee and it turns out title is defective?
My point being, if I'm buying either the vendor's or vendee's interest, I'd want to be sure I'm indemnified against loss caused by defects in title before I spend my money.
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes3y
@Peter Walther
I was explaining how contract for deeds work since I have bought one or two in the past and not just addressing your comments specifically
The second paragraph answers your question about not having title insurance - vendor and vendee beware. In 95% of the cases title is not clear because of something the vendee did. That’s why the agreement typically states title is transferred by SWD or QCD once payments are satisfied
Also for those interested in cfd’s in every cfd I have seen the vendee cannot transfer their rights without permission of the vendor (same as mortgage language they are not assumable)
Happy to answer more questions on cfd’s as we have pretty much seen it all
7e investments53 Reviews - Investor · Upper Marlboro, MD · Member since 2022 · 54 posts · 6 votes3y
Okay, very helpful. Thank you both.
Jamie, how are you converting CFD to mortgage? QCD to the Buyer/Vendee? And what's the advantage? I thought the whole general advantage to CFD was at least a slightly easier process for taking possession of the property if the Buyer defaults; a process sort of mirroring the eviction process, unless the state forces you to go through a standard foreclosure process.
Also, my earlier question about baking language into the contract that guarantees the Buyer's interest through our existing title policy was meant for getting one of our current properties under CFD. We're looking to sell but would like steady monthly payments and the ability to take back property in event of default (basically we're trying to de-landlord ourselves). Thoughts on: 1) trying to cover Buyer through the contract under our existing title policy; and 2) selling through CFD versus just listing it?
Finally, what's your website, Jamie?
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes3y
@Brittany P.
Labradorlending.com is his website
What state is the property in you are looking to do a cfd in?
I ask because depending on the state you might be better off seller financing with a traditional note and mortgage as a cfd in some states takes longer to get the property back (FL, GA, MD, VA, MO) to name a few.
7e investments53 Reviews - Specialist · Winter Springs, FL · Member since 2009 · 1k+ posts · 747 votes3y
Quote from @Chris Seveney:
@Peter Walther
I was explaining how contract for deeds work since I have bought one or two in the past and not just addressing your comments specifically
The second paragraph answers your question about not having title insurance - vendor and vendee beware. In 95% of the cases title is not clear because of something the vendee did. That’s why the agreement typically states title is transferred by SWD or QCD once payments are satisfiedAlso for those interested in cfd’s in every cfd I have seen the vendee cannot transfer their rights without permission of the vendor (same as mortgage language they are not assumable)
Happy to answer more questions on cfd’s as we have pretty much seen it all
You're quite the gambler.
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes3y
@Peter Walther
Respectfully disagree and to the contrary we prefer not to throw money away. If a contract states you are to do something that is what we do, not any more not any less.
Spending thousands for title insurance and a warranty deed on an asset that has clear title and having only to issue a special warranty deed or quit claim deed is a waste of money.
If you sell someone a car, do you upgrade the car for the purchaser like putting a new engine in it because you had the other engine checked and it’s working fine but it’s no longer under warranty?
And for analytics purposes, our success rate on CFD's is over 95% and its higher on CFD's than it is on traditional mortgages. So if winning 95% of the time is considered gambling, then I guess I am a damn good gambler.
7e investments53 Reviews - Investor · Upper Marlboro, MD · Member since 2022 · 54 posts · 6 votes3y
Uh oh. Now I feel like an instigator. I think there's some confusion caused on my part because I was asking about two separate CFD situations:
1. We're considering buying a CFD in NY; we had a 30-year title report run and it was free/clear. So I guess the debate is Chris' vs. Peter's thoughts about title insurance. I get the merits of both arguments. De facto I'm having a lot of issues finding a title agent who even gets the CFD concept as a "closing" process without deed transferring, and so I'm wondering if it's even worth pursuing title insurance for myself (I think Jamie was also saying it might not be worth it).
2. We're also considering getting one of our current properties under CFD. Our properties are in MD, so interested in what you have to say about CFD difficulties in MD. For the first property we want to consider, we know that we have to do CFD instead of seller financing because our current lender would definitely call the loan if deed transferred. For our others, the lender we worked with would probably be cool with deed transferring under a seller financing agreement. So thoughts on CFD vs SF in MD (sorry for the alphabet soup)?
- Investor · Baltimore County, MD · Member since 2014 · 466 posts · 438 votes3y
A CFD is a form of seller financing. There is a deed involved with a CFD. I would recommend a note and deed of trust in MD. In my experience you still have to go through a foreclosure even with a CFD in MD. Not sure what the advantage of the CFD would be.
- Investor · Upper Marlboro, MD · Member since 2022 · 54 posts · 6 votes3y
Only advantage for us with CFD on our one property is that we de-landlord ourselves without having our loan called on us. We could just straight up sell the place, but we're trying to avoid paying commissions and we likely wouldn't get what we'd like for the place. With our other MD properties sounds like we'd want to go note/SF because our lender on those properties is much more flexible and won't call the loan.
Thanks, you all have been really helpful on this.
- Investor · Baltimore County, MD · Member since 2014 · 466 posts · 438 votes3yIf you are planning to keep existing debt, it sounds like you would be creating wraps or subject-to loans. These concepts are vastly different from the thread topic of buying a note/CFD through Paperstac. Keeping the forum topics separate would be a good idea at this point. We are pretty far off track.
Quote from @Brittany P.:
Only advantage for us with CFD on our one property is that we de-landlord ourselves without having our loan called on us. We could just straight up sell the place, but we're trying to avoid paying commissions and we likely wouldn't get what we'd like for the place. With our other MD properties sounds like we'd want to go note/SF because our lender on those properties is much more flexible and won't call the loan.
Thanks, you all have been really helpful on this.
- Specialist · Winter Springs, FL · Member since 2009 · 1k+ posts · 747 votes3y
Quote from @Chris Seveney:
@Peter Walther
Respectfully disagree and to the contrary we prefer not to throw money away. If a contract states you are to do something that is what we do, not any more not any less.
Spending thousands for title insurance and a warranty deed on an asset that has clear title and having only to issue a special warranty deed or quit claim deed is a waste of money.
If you sell someone a car, do you upgrade the car for the purchaser like putting a new engine in it because you had the other engine checked and it’s working fine but it’s no longer under warranty?
And for analytics purposes, our success rate on CFD's is over 95% and its higher on CFD's than it is on traditional mortgages. So if winning 95% of the time is considered gambling, then I guess I am a damn good gambler.
Winning
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes3y
Quote from @Brittany P.:
Uh oh. Now I feel like an instigator. I think there's some confusion caused on my part because I was asking about two separate CFD situations:
1. We're considering buying a CFD in NY; we had a 30-year title report run and it was free/clear. So I guess the debate is Chris' vs. Peter's thoughts about title insurance. I get the merits of both arguments. De facto I'm having a lot of issues finding a title agent who even gets the CFD concept as a "closing" process without deed transferring, and so I'm wondering if it's even worth pursuing title insurance for myself (I think Jamie was also saying it might not be worth it).
2. We're also considering getting one of our current properties under CFD. Our properties are in MD, so interested in what you have to say about CFD difficulties in MD. For the first property we want to consider, we know that we have to do CFD instead of seller financing because our current lender would definitely call the loan if deed transferred. For our others, the lender we worked with would probably be cool with deed transferring under a seller financing agreement. So thoughts on CFD vs SF in MD (sorry for the alphabet soup)?
DO NOT DO A CFD IN MD. The recording fees will always kill you, also in MD a CFD must be recorded then foreclosed upon. If you do not record the CFD, the borrower at any time can come back to you and ask for every single payment back (even if they are in default). Yes its a crazy law with unrecorded CFD's in MD. As an example, borrower pays $1000 month for five years then decides the house has serious issues or depreciated, they can come back to you and give you the keys back but you need to cut them a $60k check (for all the payments). No reduction due to what rent would of been or nothing.
Also -regarding the NY asset,I have no idea if this is the case or not but-- DO NOT BUY AN EXISTING PROPERTY VIA CFD with an existing lien on it.
7e investments53 Reviews - Member since 2017 · 17 posts · 8 votes3y
This thread is super helpful as I'm looking into buying my first mortage note on Paperstac. I'm primarily interested in buying performing partials to start out. Do we need to have a debt collector's license or any other licensing for the state in which the mortgage is purchased? (particularly if buying 24-48 months' worth of payments, which will be managed by a professional servicer?)
- Investor · Upper Marlboro, MD · Member since 2022 · 54 posts · 6 votes3y
Quote from @Adrienne Patel:
This thread is super helpful as I'm looking into buying my first mortage note on Paperstac. I'm primarily interested in buying performing partials to start out. Do we need to have a debt collector's license or any other licensing for the state in which the mortgage is purchased? (particularly if buying 24-48 months' worth of payments, which will be managed by a professional servicer?)
That's something I've been really curious about? My understanding is you're good if you're going through an established loan servicer or if you're servicing under a certain number of notes/year? But I'm sure it varies wildly state by state. One of these pros must know the answer.
- Investor · Upper Marlboro, MD · Member since 2022 · 54 posts · 6 votes3y
Quote from @Chris Seveney:
Quote from @Brittany P.:
Uh oh. Now I feel like an instigator. I think there's some confusion caused on my part because I was asking about two separate CFD situations:
1. We're considering buying a CFD in NY; we had a 30-year title report run and it was free/clear. So I guess the debate is Chris' vs. Peter's thoughts about title insurance. I get the merits of both arguments. De facto I'm having a lot of issues finding a title agent who even gets the CFD concept as a "closing" process without deed transferring, and so I'm wondering if it's even worth pursuing title insurance for myself (I think Jamie was also saying it might not be worth it).
2. We're also considering getting one of our current properties under CFD. Our properties are in MD, so interested in what you have to say about CFD difficulties in MD. For the first property we want to consider, we know that we have to do CFD instead of seller financing because our current lender would definitely call the loan if deed transferred. For our others, the lender we worked with would probably be cool with deed transferring under a seller financing agreement. So thoughts on CFD vs SF in MD (sorry for the alphabet soup)?
DO NOT DO A CFD IN MD. The recording fees will always kill you, also in MD a CFD must be recorded then foreclosed upon. If you do not record the CFD, the borrower at any time can come back to you and ask for every single payment back (even if they are in default). Yes its a crazy law with unrecorded CFD's in MD. As an example, borrower pays $1000 month for five years then decides the house has serious issues or depreciated, they can come back to you and give you the keys back but you need to cut them a $60k check (for all the payments). No reduction due to what rent would of been or nothing.
Also -regarding the NY asset,I have no idea if this is the case or not but-- DO NOT BUY AN EXISTING PROPERTY VIA CFD with an existing lien on it.
Ugh. Don't want to make things to easy in the real estate game. But if I do record CFD I should be good right? I thought recordation could run into the low hundreds but nothing crazy...?
- Investor · Upper Marlboro, MD · Member since 2022 · 54 posts · 6 votes3y
Quote from @Jamie Bateman:
If you are planning to keep existing debt, it sounds like you would be creating wraps or subject-to loans. These concepts are vastly different from the thread topic of buying a note/CFD through Paperstac. Keeping the forum topics separate would be a good idea at this point. We are pretty far off track.Quote from @Brittany P.:
Only advantage for us with CFD on our one property is that we de-landlord ourselves without having our loan called on us. We could just straight up sell the place, but we're trying to avoid paying commissions and we likely wouldn't get what we'd like for the place. With our other MD properties sounds like we'd want to go note/SF because our lender on those properties is much more flexible and won't call the loan.
Thanks, you all have been really helpful on this.
I think what we're looking to do is very similar in concept to wrap/subto, but I think the big difference is that we keep the deed through CFD...? My understanding of subto is that the deed transfers a la a standard closing. For this first one we really need to keep the deed so our lender doesn't call the loan on us. Notwithstanding what you and Chris have been saying about the possible pitfalls of CFD, it seems like our best bet would be CFD so that we keep the deed. Even with deed of trust, can't the lender call the loan since we've closed with the buyer at that point?
Final question on this (for now, anyway): if we end up going CFD, couldn't we sit on it for a year, then turn around and sell the contract? That cashes out our lender and we keep the profit, no?
- Investor · Baltimore County, MD · Member since 2014 · 466 posts · 438 votes3y
What are are trying to accomplish? This is a rental? Why not keep it that way?
- Investor · Upper Marlboro, MD · Member since 2022 · 54 posts · 6 votes3y
Basically trying to get cash flow minus the landlording. I wonder if deed of trust wouldn't accomplish all this without the uncertainty of a CFD? Can you close through deed of trust without triggering due on sale?
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes3y
@Brittany P.
If your question is if you have an existing mortgage can you sell it seller financing with deed of trust the answer is no.
Here is an article adds some insight
https://www.msevanslaw.com/legal-services/real-estate/land-sale-contracts/
7e investments53 Reviews - Investor · Baltimore County, MD · Member since 2014 · 466 posts · 438 votes3y
@Brittany P. Again, this leads to the world of wraps and subject-to's.
Not sure how you would sell the property (whether through mortgage/DOT/CFD) with an exisiting loan without triggering the due-on-sale clause. Your current loan docs will guide you with regard to what would trigger this clause. Most likely, your loan docs are written such that when you sell the property (whether you are creating a land contract or mortgage or deed of trust is irrelevant), you trigger the due-on-sale clause. Now, whether your lender wants to pursue legal action when the property is transferred is up to them.
The bigger question for me, though, is why you would do this. What are you trying to accomplish? Sounds like you want to move from more active to passive? I would likely keep it as a rental and get the tax benefits, appreciation, etc., that come with that.
And again, we have veered way off from the original question, which was about buying a note/CFD through Paperstac.
@Brittany P.undefined
- Investor · Upper Marlboro, MD · Member since 2022 · 54 posts · 6 votes3y
Yeah, we're definitely down a rabbit hole. Okay, sounds like we need to review the current mortgage. I was under the impression we could use either CFD or DOT and avoid triggering. Thanks, you all have been super helpful!
- Investor · Orlando, FL · Member since 2014 · 110 posts · 90 votes3y
Quote from @Jamie Bateman:
The title policy from origination (covering that date backwards), is what we look for. We typically do not purchase any additional title insurance.
Yes, recording is typically the buyer’s responsibility. @Brett Burky can answer specific Paperstac questions.
That is the true that the buyer will want to get the documents recorded. Paperstac does offer that as a service but we must know about it prior to the transaction being completed.
- Investor · Orlando, FL · Member since 2014 · 110 posts · 90 votes3y
Thanks, @Chris Seveney & @Jamie Bateman - I haven't been here in a while and missed this conversation. @Brittany P. - thanks for all of the great questions.
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